The Federal Deposit Insurance Corp. plans to hike deposit insurance assessment rates next year — a move that would increase costs for banks as they continue to see high deposit growth more than a year after the last round of pandemic stimulus.
At a board meeting Tuesday, the FDIC voted to issue a notice of proposed rulemaking that would raise deposit insurance assessment rates by 2 basis points for all insured depository institutions.
Assessments vary based on a bank’s size, condition and other factors. The proposal would have only a “modest” impact on the industry’s profits, about an average estimated annual reduction of less than 2%, FDIC acting Chairman Martin Gruenberg said at the meeting.
“A year has passed since the latest quarter of extraordinary growth in insured deposits prompted by the most recent round of pandemic-related fiscal stimulus,” Gruenberg said. “The banking industry has continued to report strong insured deposit growth.”
Gruenberg said that insured deposits in the first quarter of 2022 increased by the largest amount in at least 30 years, excluding the early part of the pandemic and the period right after the increase in deposit coverage in 2009.
The decision is part of the agency’s long-term plan for the reserve ratio of the Deposit Insurance Fund to reach the statutory minimum of 1.35% by September 2028. The ratio was 1.23% at March 30, down from 1.30% at June 30, 2020. The FDIC board also amended its restoration plan to account for the higher assessment rates.
Banks are likely to push back. Before the FDIC board meeting, the Independent Community Bankers of America’s executive vice president and senior regulatory counsel, Chris Cole, said that banks would be paying more for their FDIC insurance at the same time the Federal Reserve is raising its benchmark interest rate.
“This will be difficult for banks to deal with because they haven’t had an increase in assessments in a very long time,” he said. “We have the possibility of an economic downturn coming up, so it’s not the best time in the world to be asking banks to pay more for their FDIC insurance.”
Given that timing, Cole said that banks will likely object to the FDIC pursuing this move now, given the long timeline the board has to make adjustments.
“Some of my members will find it difficult to understand why, if the FDIC just needs to restore the reserve ratio to 1.35% by 2028, why do they need to do this right now? They’ve got six more years,” he said. “So that’s going to be a hard sell.”
In the board meeting, Gruenberg explained that the timing of the proposed rulemaking is so that the FDIC doesn’t have to make a more drastic increase in assessment fees later. Currently, the banking industry’s capital, liquidity and earnings are strong, allowing banks to absorb the plan’s limited hit, Gruenberg said.
“Better to take prudent but modest action earlier in the statutory eight-year period to reach the minimum reserve ratio of the Deposit Insurance Fund than to delay and potentially have to consider a larger increase in assessments at a later time when banking and economic conditions may be less favorable,” he said.
Rohit Chopra, the director of the Consumer Financial Protection Bureau and a member of the FDIC’s board, suggested that the board “explore potentially new mechanisms to automatically adjust premiums upward or downward based on economic conditions and the reserve ratio rather than relying on potentially ad hoc actions.”
“For example, calibrating assessment rates based on banking sector profitability or a combination of metrics is worth exploration in my mind,” Chopra said. “The board should also evaluate the relative burden of assessments on banks of varying sizes and complexity, including whether the very largest firms, especially globally systemically important banks, should be paying a higher share of the assessments than they do today given their risk.”
The proposed rate schedule would take effect in the first assessment period of 2023 and continue unless the reserve ratio meets or exceeds 2%, the FDIC said.
The agency will take public comments through Aug. 20.
