WASHINGTON — The Federal Deposit Insurance Corp. approved a final rule Friday that would charge banks a special assessment based on their assets, rather than deposits — the first time in the agency's history it has made such a move.
The agency will change banks a one-time premium in the second quarter of 5 cents per $100 of an institution's assets minus its Tier 1 capital. But for banks and thrifts with large asset portfolios, the assessment will be capped at 10 basis points of their domestic deposits.
The move was not without controversy. During the meeting, Comptroller of the Currency John Dugan appeared angry when he objected to basing the assessment on assets. He argued that the FDIC insures deposits, not assets, and that it has been smaller banks that have depleted the Deposit Insurance Fund.
"I must say that the board case for making this change is exceptionally thin," Dugan said. Losses in the fund were "caused by actual and projected failures of smaller banks."
The asset-based calculation is expected to hit the largest banks — including JPMorgan Chase and Citibank — harder than a regular assessment based on domestic deposits. Several large banks objected this week to the change, arguing they are not at fault for the DIF's decline.
Bair defended the move during the meeting, arguing that some large banks would have failed if not for special government programs put in place to prop them up.
"If it weren't for these… [large] banks would failed, and there would have been cost," Bair said.
Despite Dugan's objections, the final rule passed 4 to 1.
The FDIC left itself leeway to charge another special assessment in the third or fourth quarters, if needed, of 5 basis points of an institution's assets minus Tier 1 capital. Any additional assessments will also be capped. Under the rule, the agency's authority to impose such an assessment would expire in January (The FDIC could always propose a new premium, however, at any time).
Bair said the agency is likely to need to charge another assessment by yearend.
"We think there is a good probability that we will have to do another special assessment in the fourth quarter," she said.
The final rule comes one day after the FDIC announced its second-most expensive failure of the crisis and the largest collapse this year: the closing of $13 billion-asset BankUnited in Coral Gables, Fla. The failure is expected to cost $4.9 billion.
Even before the failure, the agency was projecting high losses from collapses in the next few years, but officials actually updated those projections on Friday. The FDIC said losses are projected to total $70 billion over the next five years, a $5 billion increase from the last projection.
In the fourth quarter of last year, the DIF's ratio of reserves to insured deposits had inched closer to zero, falling to 0.40%, with funds totaling about $19 billion. (The fund balance does not include reserves the agency has set aside for expected failures).
On Friday, the FDIC said the special assessment — combined with normal quarterly assessment rates of 12 to 16 basis points of deposits — "should result in maintaining a year-end fund balance and reserve ratio that are positive, albeit close to zero."