WASHINGTON — The Federal Deposit Insurance Corp. said Tuesday it would delay raising premiums until the economic outlook gets clearer and Congress finalizes changes to the system as part of regulatory reform.
The agency's board voted to maintain assessment rates at their current level, despite the fact that they are not projected to restore the FDIC's battered reserves until three months after a statutory deadline of Jan. 1, 2017.
The FDIC also finalized a six-month extension of the Transaction Account Guarantee Program, which provides optional unlimited guarantees for non-interest-bearing checking accounts, until the end of this year.
The current restoration plan for the Deposit Insurance Fund would not bring reserves back to 1.15% of insured deposits until March 31, 2017, a quarter later than allowed under current law, but officials said the agency should defer any premium increase until industry projections are more certain, and banks could absorb higher rates more easily.
"I think we just hold the course for now," FDIC Chairman Sheila Bair said at the meeting. "We still expect bank failures to peak this year, and start tapering off next year as the industry continues to heal and recover, but there are still some uncertainties that lie ahead."
But the delay in action also reflected uncertainty about Congress' final moves on FDIC reforms, and the agency's own pending proposals to revamp the system.
The conference committee working to finalize the regulatory overhaul has included language to permanently increase the general coverage level to $250,000 from $100,000. (The increase is now set to expire at yearend 2013.) Lawmakers have also favored removing a cap on FDIC rates, and extending TAG once again in statute.
"We are aware of legislative changes that are being discussed that could impact assessments and the DIF reserve ratio," Marc Steckel, an associate director in the agency's insurance division, told the board. "We expect that these changes will be finalized soon, and recommend that the board not change assessment rates until the impact of these changes becomes certain."
Under the current restoration plan, healthy banks pay between 12 cents and 16 cents per $100 of domestic deposits, while troubled banks can pay as much as 45 cents. Prices for all banks will uniformly rise 3 cents starting in January 2011. Additionally, a pending FDIC proposal to reform its risk-based pricing formula would expand the range to between 10 cents and 50 cents this year, and between 13 cents and 53 cents next year.
To bolster the FDIC's cash position to handle failures, banks prepaid estimated assessments from late 2009 through 2012 — totaling $45 billion — but do not have to report those assessments as expenses until the quarter they otherwise would have been charged.
Steckel said that even though the agency is not on pace to reach the minimum reserve mark by the statutorily required 2016, it is simply too soon to alter the price schedule further.
"We also think that if higher assessments become necessary, giving the industry more time to recover would make that burden easier to bear," he said.
Comptroller of the Currency John Dugan, an FDIC board member, agreed, saying, "We should wait and see what Congress does and where we are as we go forward."
The agency also provided updated projections for future losses tied to failures. Officials said a previous estimate of $100 billion in failure losses for the period of 2009 through 2013 was unchanged. But with failures expected to stabilize after next year, future loss projections were lower. The FDIC said it expects to lose about $60 billion in the five-year period from 2010 to 2014.
The board voted unanimously to finalize the TAG extension until the end of the year, which had already become effective under an interim rule. Under the final policy, the agency has the authority to extend the program for an additional period "not to exceed" Dec. 31, 2011.
But officials noted uncertainty about the TAG program resulting from the legislation. House and Senate conferees were expected Tuesday to support extending the program through 2012.
The FDIC's "action may actually be superseded by the legislation that is finalized," Bair said.