The Federal Deposit Insurance Act (the FDI Act) requires that the FDIC’s Board of Directors (Board) adopt a restoration plan when the reserve ratio of the Deposit Insurance Fund (DIF) falls below the statutory minimum of 1.35 percent. 1 The reserve ratio of the DIF is the ratio of the Fund balance to all insured deposits.2
Extraordinary growth in insured deposits during the first half of 2020 resulting from the response to the COVID-19 pandemic caused the DIF reserve ratio to decline below the statutory minimum of 1.35 percent as of June 30, 2020. On September 15, 2020, the FDIC Board adopted a Restoration Plan to restore the DIF to at least 1.35 percent within eight years, as required by law, and to maintain the assessment rate schedules in place at that time. 3
On June 21, 2022, based on projections that the reserve ratio was at risk of not reaching the statutory minimum of 1.35 percent by September 30, 2028, because of continued insured deposit growth, the FDIC Board amended the Restoration Plan. The Board proposed, and subsequently finalized in October, an increase in initial base deposit insurance assessment rate schedules of 2 basis points to improve the likelihood that the reserve ratio would be restored to at least 1.35 percent by September 30, 2028. 4 The revised assessment rate schedules became effective January 1, 2023, and are applicable to the first quarterly assessment period of 2023.
The increase in assessment rates was intended to strengthen the DIF as the banking industry was facing significant downside risks, including inflation, rising interest rates, and slowing economic growth.
The Amended Restoration Plan requires the FDIC to update its analysis and projections for the DIF balance and reserve ratio at least semiannually and, if necessary, recommend modifications to the Amended Restoration Plan.
This is the first semiannual update of 2023. The bottom line to today’s update is that even with increased uncertainty in the banking industry and the recent failure of two large banks, staff project that the losses from the two failures are not expected to have a material effect on the projected timeline for reaching the statutory minimum reserve ratio of 1.35 percent. The reserve ratio is expected to reach the minimum ahead of the statutory deadline of September 30, 2028, and staff recommend no changes to the Amended Restoration Plan at this time.
The failures of Silicon Valley Bank on March 10, 2023, and Signature Bank on March 12, 2023, were due to sudden and unexpected liquidity needs as a result of large withdrawals of uninsured deposits. The FDIC estimated the cost to the DIF for these failures to be $20 billion and $2.5 billion, respectively.5 Of that estimated total cost of $22.5 billion, the FDIC estimated that approximately $19.2 billion was attributable to the cost of covering uninsured deposits pursuant to systemic risk determinations made on March 12, 2023.
By statute, the FDIC is required to recover through special assessments the estimated $19.2 billion of losses to the DIF incurred as a result of the FDIC’s actions pursuant to determinations of systemic risk. The FDIC will do so through notice-and-comment rulemaking in May. As a result, the $19.2 billion in losses to support uninsured deposits will not directly impact the DIF balance because the FDIC is required to collect a special assessment for those losses. The remaining estimated loss from these two failures of $3.2 billion will directly impact the DIF balance. However, this estimated loss alone is not expected to have a material effect on the projected timeline for reaching the statutory minimum reserve ratio.
FDIC staff will continue to update the Board semiannually, or more frequently as conditions warrant, to determine if changes to the Amended Restoration Plan are necessary. Reaching the statutory minimum reasonably promptly and in advance of the statutory deadline strengthens the DIF so that it can better withstand unexpected losses and reduce the likelihood of pro-cyclical assessments. 6
Finally, I would like to thank the FDIC staff for their thoughtful work on providing this Restoration Plan semiannual update.
1 Section 7(b)(3)(E) of the Federal Deposit Insurance Act, 12 USC 1817(b)(3)(E).
2 Section 3(y)(3) of the FDI Act, 12 USC 1813(y)(3).
3 2020 FDIC Restoration Plan, 85 FR 59306 (Sept. 21, 2020), available at https://www.fdic.gov/news/board-matters/2020/2020-09-15-notice-dis-a-fr.pdf.
4 2022 FDIC Amended Restoration Plan, 87 FR 39518 (July 1, 2022), available at https://www.fdic.gov/news/board-matters/2022/2022-06-21-notice-sum-b-fr.pdf. Notice of Proposed Rulemaking on Assessments, Revised Deposit Insurance Assessment Rates, 87 FR 39388 (July 1, 2020), available at https://www.fdic.gov/news/board-matters/2022/2022-06-21-notice-dis-a-fr.pdf.
6 Since 2010, the Board has adopted a 2.0 percent DRR each year. An analysis using historical fund loss and simulated income data from 1950 to 2010 showed that the DRR would had to have exceeded 2.0 percent before the onset of the two crises that occurred during the past 30 years to have maintained both a positive fund balance and stable assessment rates throughout both crises. The FDIC views the 2.0 percent DRR as a long-term goal and the minimum level needed to withstand future crises of the magnitude of past crises. See FDIC Designated Reserve Ratio for 2022, 86 FR 71638 (December 17, 2021), available at https://www.govinfo.gov/content/pkg/FR-2021-12-17/pdf/2021-27382.pdf and related Memorandum to the FDIC Board of Directors, available at https://www.fdic.gov/news/board-matters/2021/2021-12-14-notice-sum-c-mem.pdf.