WASHINGTON — Four years after the Federal Deposit Insurance Corp. launched an elaborate deposit insurance pricing system, the agency has gone back to the drawing board.
Citing the origins of the financial crisis, the agency Tuesday proposed a new system for setting large-bank assessments that relies less on current financial performance and more on the potential for future problems.
"We've learned a lot from the crisis," FDIC Chairman Sheila Bair said at a meeting of the agency's board, which unanimously issued the proposal for a 60-day comment period. "We know that things like higher-risk concentrations, excessive short-term funding, poor quality of capital, poor quality of earnings, are indicators of risk and can portend a future deterioration in an institution."
The plan came as the agency also moved to extend its voluntary coverage of certain transaction accounts by six months, to Dec. 31, with the option to extend it again to the end of 2011. (See story on page 18.)
The new assessments plan would largely leave the pricing system unchanged for small banks.
For the 107 institutions with assets of more than $10 billion, however, the FDIC said it would consider more "forward-looking measures" to determine premium payments.
For a large bank, the agency would combine its Camels rating — a key factor in the current system — with new factors meant to gauge a bank's ability to respond to stress. These include measures related to asset stress, such as Tier 1 capital, a bank's level of high-risk concentrations and underperforming assets; and those related to funding stress, such as its ratio of core deposits to total liabilities.
Also added to the mix would be a calculation of the potential losses a bank would impose on the Deposit Insurance Fund if it were to fail.
Nine "highly complex" institutions, including those that have assets of more than $50 billion and are owned by a firm with more than $500 billion of assets, would be judged more closely. They would be subject to additional market factors, such as the parent's tangible common equity and the market spreads of senior debt.
These changes would lead to customized premiums for each large institution.
The agency said that after passage of a final rule, further changes to the assessment system may be needed, and asked for comment on additional pricing measures, such as counterparty risk.
While the plan would retain aspects of the current system — which was authorized by the 2006 deposit insurance reform law — that measure a bank's financial performance, officials expressed hope the new system would be an improvement.
They said the crisis proved that assessments should be based more on long-term risk, and the system's current use of rating agencies to gauge banks' debt risk is inadequate. (The proposal would eliminate the use of rating agencies.)
"Rather than simply focusing on an institution's current performance," the intent of the proposed system is that it "differentiates risk over the entire credit cycle," Bair said.
The overall amount of money collected by the FDIC would not change. The agency proposed expanding the basic range of assessments charged to 10 to 50 cents per $100 of domestic deposits, from 12 to 45 cents under the current system.
Comptroller of the Currency John Dugan said that, while he supported the goal, he questioned whether the new measures would be too subjective and complex.
"I support a countercyclical approach, and I feel we need to further examine whether the proposed changes actually act in a countercyclical manner rather than charging banks more when they can least afford it," Dugan said.
Representatives from the bank trade associations had similar concerns.
"It has the opportunity for introducing a lot of subjective factors. … We're going to have to look at it very closely to see if there are ways to get some objectivity put back into it," said Richard Whiting, the executive director of the Financial Services Roundtable.