WASHINGTON — The Federal Deposit Insurance Corp. issued a proposal Tuesday that would significantly overhaul how much large banks pay in premiums.
Under the plan, which has a 60-day comment period, institutions with more than $10 billion in assets would be assessed based on more "forward-looking measures," such as their ability to handle asset-related stresses and the potential severity of FDIC losses if that institution were to fail.
The proposal would apply to 107 institutions. It would eliminate certain factors currently used in determining a large bank's premiums, including their debt issuer ratings from accredited rating agencies. The new system would still rely partly on a bank's Camels rating as a key pricing factor, but would combine it with new measures.
Nine "highly complex" institutions would be judged even more closely. Those institutions — which have assets of more than $50 billion and holding companies larger than $500 billion of assets — would be subject to additional pricing factors, such as the tangible common equity ratio of the parent firm, and the market spreads of their senior bonds.
The system would not necessarily cause a higher premium for all large institutions. Large banks would no longer be placed in buckets — known as risk categories — that under the current system determine their premium payment. Instead, an individual scorecard would determine a large bank's premium based on a scale from 10 cents per $100 of domestic deposits to 50 cents. (The current range for the industry is 12 to 45 cents).
The FDIC also proposed to alter the rate schedule for smaller institutions. Even though those institutions would still be placed into risk categories, and their pricing formula would stay the same, the FDIC proposal would let premiums go as low as 10 basis points and as high as 50 basis points, similar to large banks.