WASHINGTON — The Federal Deposit Insurance Corp. issued a final rule on Tuesday that will update how it calculates deposit insurance assessment rates for small financial institutions.
"Prior to today's rulemaking, the last major update to risk-based assessments for small banks — those with less than $10 billion in assets — became effective in 2007," FDIC Chairman Martin Gruenberg said. "The current rulemaking updates the system using data from two financial crises and is aimed at making rates more accurately and timely in identifying risks to the deposit insurance fund."
The board unanimously adopted the rule, which is largely unchanged from a proposal released in January. Among the changes, the rule establishes a new ratio applying to all established small banks that penalizes high usage of brokered deposits. Banks with brokered deposits of more than 10% of total assets may see an increase in their assessment rate. For institutions that are less than well-capitalized or with Camels ratings of 3 or higher, "reciprocal" deposits will be included in the brokered deposit amount.
"We still have concerns with the loan mix index, and particularly its impact on construction development and C&I lending," said Chris Cole, executive vice president and senior regulatory counsel at the Independent Community Bankers of America.
The rule will be implemented in July, or the quarter after the Deposit Insurance Fund's ratio of reserves to insured deposits reaches 1.15%. This is still likely to happen in the first half of 2016, FDIC officials said.
When asked by FDIC Vice Chairman Thomas Hoenig how often they planned to recalculate the risk model in the future, agency officials said that it would be difficult to make new assessments without more bank failures.
"You don't want to have to change anytime soon," Hoenig joked.
But to the banking industry, this underscores the limitations of the FDIC's risk-based calculation approach. "The FDIC is always looking at the last problem," said Rob Strand, a senior economist at the American Bankers Association.
Bert Ely, a banking consultant in Alexandria, Va., agreed.
"It tends to focus primarily on lagging measures of risk," he said. "You don't have a deterrence effect."
The FDIC also released a proposal on executive compensation pay that would require senior executives to defer incentive compensation for a set period of time, depending on the size of their bank.
The plan, first unveiled by the National Credit Union Administration last week, is being jointly released by the FDIC, Federal Reserve, NCUA, Office of the Comptroller of the Currency, Securities and Exchange Commission and the Federal Housing Finance Agency. It is open for comment until July 22.
FDIC officials and others commended the plan, which Gruenberg called "perhaps the most important Dodd-Frank [Act] rulemaking remaining to be implemented."
Comptroller Thomas Curry agreed.
"The rule calls on lending officers and other employees to put the interests of their institutions above their own," Curry said. It "recognizes the important role that compensation plays in the risks that banks and other financial institutions assume by requiring proper alignment of compensation incentives with their organizations' risk appetite."