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FDIC on Deposit Insurance Assessments for Small Banks

Federal
Deposit Insurance Corporation

Notice
of Proposed Rulemaking on Deposit Insurance Assessments for Small Banks

Thursday,
January 21, 2016

Key
Topics & Takeaways

    Three Key Changes: Staff of the
    Federal Deposit Insurance Corporation (FDIC) highlighted three important
    changes in the revised notice of proposed rulemaking (NPR): 1) Introduction of
    three new financial quality measures; 2) Launch of a new broker deposit ratio
    that would increase assessment rates for banks holding over 10 percent of
    assets in broker deposits; and 3) Exclusion of reciprocal deposits for
    well-capitalized small banks based on their CAMEL composite rating.  FDIC
    staff assured the Board that the revised NPR would be revenue neutral, that 80
    percent of small banks would have either the same or lower deposit insurance
    assessment rates, and that the revised NPR would better predict bank failure in
    crisis scenarios than the earlier proposal put forth in June 2015.

  • Reasonable Accommodation: Vice Chairman
    Hoenig asked staff to clarify why they selected the 10 percent value for the
    one year asset growth measure.  Staff explained that they wanted to
    exclude “normal growth” in assets over a one-year period and that they believed
    that threshold was a “reasonable accommodation” to that end.

    Unanimous Approval: The FDIC
    unanimously approved releasing the NPR on deposit insurance assessments for
    small banks with a 30-day comment period.    

     

    Speakers:

    Staff of the FDIC

     

    Opening
    Remarks

    FDIC Staff

    Staff
    recommended revising the proposed rules on calculation of deposit insurance assessments
    for small insured depository institutions, which were initially proposed
    in June 2015    .  The staff highlighted three important changes in
    the revised NPR, such as the: 1) Introduction of three new measures (the one
    year asset growth measure, a core deposit ratio, and a loan mix index); 2)
    Launch of a new broker deposit ratio that would increase assessment rates for
    banks holding over 10 percent of assets in broker deposits; and 3) Exclusion of
    reciprocal deposits for well-capitalized small banks that have a CAMEL
    composite rating of 1 or 2.  With these changes, the FDIC staff assured
    the Board that the revised NPR would be revenue neutral, and that 80 percent of
    small banks would have either the same or lower deposit insurance assessment
    rates.  Further, the staff indicated that a “compelling benefit of the
    proposal” is that the revised NPR would better predict bank failure in crisis
    scenarios than the earlier proposal put forth in June 2015.       

    Martin Gruenberg, Chair of the FDIC

    In
    his remarks,
    Gruenberg explained that the revised NPR would increase assessment rates only
    when asset growth exceeds 10 percent in one year.  In addition, he claimed
    that the revised broker deposit ratio that will be used to calculate a bank’s
    assessment rate is consistent with comments received on the June 2015
    proposal.  

    Overall,
    Gruenberg asserted that the revised proposal would not change the aggregate
    amount that the FDIC expects them to collect for small banks, while more than
    93% of small banks would experience rate decreases. Gruenberg also explained
    that the FDIC will publish an online assessment calculator to help banks
    estimate their assessment rates under the revised proposal. Gruenberg indicated
    his support for publication of the revised NPR. 

    Thomas Curry, Comptroller of the
    Currency 

    Curry
    expressed his support for issuing the NPR with a 30-day comment period. 

    Richard Cordray, Director, Consumer Financial
    Protection Bureau

    Cordray
    asked about the implementation timeline by clarifying that the proposed rule
    would take effect the quarter after the deposit insurance fund (DIF) reserve
    ratio reaches 1.15% or as soon as possible.  The staff explained that the
    proposal would likely take effect in the fourth quarter of 2016, or possibly
    the third quarter. Cordray indicated that he had “no concerns” with the
    proposed rule.

    Thomas Hoenig, Vice Chairman, FDIC

    Hoenig
    indicated that he is “fine” with the proposal, but asked staff to clarify why
    they selected the 10 percent value for the asset growth indicator.  Staff
    explained that they wanted to exclude “normal growth” in assets over a one-year
    period and that they believed that threshold was a “reasonable accommodation”
    to that end. 

    Vote

    The
    FDIC Board unanimously approved the NPR. 

    More
    information about this event can be accessed here.