WASHINGTON – All banks and thrifts will pay significantly more in deposit insurance premiums next year under a plan proposed Tuesday by the Federal Deposit Insurance Corp.
Under the plan, more than 90% of banks and thrifts will pay between 12 to 14 cents per $100 of domestic deposits starting Jan. 1. Most institutions paid between 5 to 7 basis points in assessments this year.
After the end of the first quarter, the FDIC plans to further refine that range by introducing more risk-based elements. That is expected to reduce the lowest assessment rate, and beginning April 1 most banks would pay between 10 to 14 basis points.
But even that range will be subject to additional factors. The FDIC plans to give credit to institutions that make moves designed to lower the agency’s costs in the event of a failure. For instance, larger banks that issue subordinated debt could see a 2 basis point reduction in their assessment rate while smaller institutions could see a rate reduction for high levels of Tier 1 capital.
But institutions also could face as much as a 7 basis point additional premium for significant holdings of secured liabilities, such as brokered deposits. Such deposits have been blamed for raising the cost of several failures during the past year, including the collapse of IndyMac Bancorp. on July 11.
On average, the FDIC said banks would pay roughly 13.5 basis points in premiums by the second quarter of next year. They currently pay 6.5 basis points.
Though board members raised concerns about some aspects of the plan, it was unanimously approved for a 30-day comment period.
Comptroller of the Currency John Dugan said he had concerns about whether it was fair to give only a 2 basis point reduction for actions that lessened the cost to the Deposit Insurance Fund in the event of a failure, while charging an additional 7 basis points for activities that increase it.
"I don’t know whether that balance is accurate," he said.
Overall, however, FDIC officials said changes were necessary as the DIF's ratio of reserves to insured deposits continues to decline. The reserve ratio fell to 1.01% at the end of the second quarter, 14 basis points below its statutory minimum. The agency was required to develop a plan that would return the ratio to that level within five years.
FDIC officials warned Tuesday that future bank failures could cost the fund $40 billion through 2013. The DIF held roughly $45 billion at the end of the second quarter.
They said additional premiums, however, would offset that cost, and help the DIF ratio reach the 1.15% minimum level within five years. FDIC Chairman Sheila Bair said the fund would continue to take a hit, but she did not anticipate the agency will have to borrow from its credit line with the Treasury Department.
"The reserve ratio is going to go down before it starts going back up, given current stress," FDIC Chairman Sheila Bair said. "At least on the projections we have done – we have done a lot of rigorous stress analysis – we will be able to rely on industry reserves and not have to go to Treasury for a loan."