FDIC still on track to hit key deposit insurance target early

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WASHINGTON — The Federal Deposit Insurance Corp. will likely hit its key target set by Congress to restore its reserves for insuring deposits later this year, well ahead of the statutory deadline, the agency said Tuesday.

In an update on the Deposit Insurance Fund to the agency's board, FDIC staff said the fund's ratio of reserves to estimated deposits was 1.30% on Dec. 31 and will likely reach the required 1.35% level by the second half of 2018. The Dodd-Frank Act required the FDIC to hit that reserve target by September 2020.

The projection was consistent with the FDIC's last update in September, when the agency projected hitting that target sometime this year.

The fund at the end of 2017 boasted "the highest reserve ratio ... since December 2004,” FDIC Chairman Martin Gruenberg said during the board’s first update on the fund for 2018. “The improvement in the insurance fund last year reflected the generally positive performance of the banking industry.”

The Deposit Insurance Fund jumped almost $9.6 billion in 2017 to $92.7 billion as of Dec. 31. The reserve ratio jumped from 1.20% at the end of 2016 to 1.30% a year later. Only eight banks failed last year and none have been closed so far this year.

Dodd-Frank mandated that once the ratio hit 1.15%, big banks would be largely responsible for boosting the fund to its statutory target. The FDIC started to impose surcharges on large banks with assets of $10 billion or more in the third quarter of 2016. The extra assessments will continue until the DIF reaches 1.35%.

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

“By meeting this target earlier than the mandate, we reduce the risk that the FDIC will have to raise rates unexpectedly in the event of a future period of distress, and help insure stable and predictable assessments for the industry,” Gruenberg said.

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