FDIC board to discuss fund restoration plan next week

WASHINGTON — The board of the Federal Deposit Insurance Corp. will consider a plan on Sept. 15 to shore up the Deposit Insurance Fund after its reserve ratio fell below the statutory minimum.

Last month, the FDIC announced that the reserve ratio of the DIF — the fund responsible for covering depositor losses and administrative costs when a bank fails — had fallen 9 basis points between the first and second quarter of 2020, from 1.39% to 1.30%. The decline was attributed to an unprecedented surge in deposits. Congress requires the agency to maintain reserves of 1.35% of estimated insurance deposits.

“I want to emphasize that the Fund has more money than at any time in the FDIC’s history, and the reduction in the reserve ratio was solely a result of the unprecedented increase in bank deposits,” FDIC Chair Jelena McWilliams said in prepared remarks last month announcing the results of the agency’s Quarterly Banking Profile. The DIF’s current balance is $114.7 billion.

It is unclear whether the FDIC’s coming restoration plan will raise premiums on banks. While the DIF is primarily funded by assessment fees paid by banks, McWilliams said in her prepared remarks last month that the agency believes “deposit growth is likely to normalize in the upcoming quarters and for the reserve ratio to rise above 1.35 without any need to modify assessment rates in the near term.”

The Dodd-Frank Act raised the statutory minimum of the DIF's reserve ratio from 1.15% to 1.35% in 2010, and gave the agency until Sept. 30, 2020, to hit the new target. The FDIC managed to reach the goal early, achieving a reserve ratio of 1.36% in September 2018.