WASHINGTON — The Federal Deposit Insurance Corp. approved a final rule Tuesday that will reconfigure bank assessments once federal reserves reach a statutory threshold.
Under the Dodd-Frank Act, the FDIC is required to shift the premium burden to big banks once the Deposit Insurance Fund's ratio of reserves to insured deposits reaches 1.15% — a target the agency expects to hit by June 30.
The final rule will impose a 4.5-basis-point surcharge on the assessments of banks with more than $10 billion until the DIF ratio reaches 1.35%, which the agency expects to happen in roughly eight quarters.
Though the rule is similar to a proposal issued in October, the FDIC attempted to respond to concerns from both community banks and large financial institutions in the final rule.
"The FDIC is taking a balanced approach to addressing this issue," FDIC Chairman Martin Gruenberg said during a board meeting.
"The large majority of institutions will have substantially reduced assessments when the reserve ratio reaches 1.15%," Gruenberg said. "Even many midsized institutions subject to surcharges are expected to pay a lower total assessment rate, including the surcharges incurred. The assessment surcharges on large institutions will be spread out over time and should be manageable for the institutions."
Smaller banks will receive credits as soon as the ratio reaches 1.38% — a concession from the proposal, which set the cutoff point at 1.4%. Moreover, small banks will be able to cash in on those credits all at once, instead of having to draw out the deductions from their assessments 2 basis points at a time as previously envisioned.
"Those two things I think makes it easier for our guys," said Christopher Cole, executive vice president and senior regulatory counsel at the Independent Community Bankers of America.
Because all banks will benefit from a separate assessment rate decrease scheduled to kick in when the DIF reaches 1.15%, smaller institutions will see their overall premium bill decrease, the FDIC noted. One-third of larger banks are also expected to spend less on assessments as a result, the agency estimated.
Larger banks also appear satisfied with the final rule, which gave them a concession. The initial proposal planned to add on all affiliated smaller banks' assets to a larger institution's asset base when calculating the surcharge in order to keep holding companies from avoiding the surcharge by shifting assets.
In the final rule, larger banks will need to add on to their asset base only the portion of smaller banks' assets that represent a more than 10% annual growth.
"They're cutting them some slack," said Bert Ely, a banking consultant in Alexandria, Va.
The surcharge will go into effect on July 1 or the quarter after the DIF ratio reaches 1.15%.
Larger banks had also lobbied the FDIC to extend the period of surcharge.
"The FDIC should have taken advantage of the provisions in the Dodd-Frank Act to stretch out assessments through the third quarter of 2020," said Robert Strand, a senior economist at the American Bankers Association.
Under the FDIC's timetable, the DIF ratio should reach 1.35% by December 2018.
"This approach reduces the risk that the FDIC will have to raise rates unexpectedly in the event of a future period of stress and should allow the FDIC to maintain stable and predictable assessments," Gruenberg said.