The Federal Deposit Insurance Corp. is still on track to hit a crucial target set by Congress well ahead of schedule, the agency said Tuesday.

In an update on the Deposit Insurance Fund, the FDIC said its reserves are on track to reach the required 1.35% reserve ratio by next year. Last year, the FDIC said it expected to reach that ratio by December 2018. The Dodd-Frank Act requires the agency to hit the reserve target by 2020.

"The Deposit Insurance Fund balance ... rose to $83.2 billion year-end of 2016," FDIC Chairman Martin Gruenberg said at a board meeting. "That's an increase of $10.6 billion over the year."

FDIC chairman Martin Gruenberg
"The improvement in the Deposit Insurance Fund in 2016 mirrors the largely positive performance of the banking industry during the year," said FDIC Chairman Gruenberg. "Revenue and net income were higher, asset quality improved, and the number of unprofitable and problem banks continued to decline." Bloomberg News

Gruenberg added that the reserve ratio of 1.2% at the end of 2016 was "the highest reserve ratio in nine years."

"The improvement in the Deposit Insurance Fund in 2016 mirrors the largely positive performance of the banking industry during the year," Gruenberg said. "Revenue and net income were higher, asset quality improved and the number of unprofitable and problem banks continued to decline."

With the rising DIF, banks can now see changes in the premiums they pay for deposit insurance.

Dodd-Frank mandated that once the ratio hit 1.15%, the burden of boosting the fund further is shifted to big banks. The DIF exceeded 1.15% in the second quarter of last year, reaching 1.17% and therefore sparking a modification in assessments.

In the third quarter the FDIC started to impose surcharges on banks with assets of $10 billion or more, and it will continue to do so until the DIF reaches 1.35%.

Meanwhile, once the DIF reaches 1.38%, small banks will be offered credits for their portion of assessments responsible for raising the DIF to 1.35%.

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Lalita Clozel

Lalita Clozel covers fintech regulation, anti-money-laundering, cybersecurity and the Federal Deposit Insurance Corp. in American Banker's Washington bureau.