Federal Deposit Insurance Corp. acting Chair Travis Hill on Tuesday suggested the agency consider changing how it calculates the Deposit Insurance Fund's reserve ratio, which could impact what it charges banks for their access to deposit insurance.
Hill, in comments at the FDIC's first open board meeting since taking over for former FDIC Chair Martin Gruenberg in January, suggested that calculating the DIF's reserve ratio using only banks' insured deposits may no longer make sense.
"The FDIC moved away from charging assessments on the basis of insured deposits years ago, creating a mismatch in how assessments are charged and how the health of the DIF is measured," Hill said. "One alternative permitted by the FDI act is to use the assessment base, rather than insured deposits, as the denominator of the reserve ratio, and I've asked staff to analyze this option for future consideration."
Banks pay quarterly assessments to the FDIC to support the DIF, which insures depositor funds up to the legal limit, in most cases $250,000. The size of each bank's assessment is calculated considering the bank's risk profile and assets. Currently banks pay assessments on their total liabilities, not just their insured deposits. Small banks — or those with under $10 billion in assets — are assigned rates using a formula based on supervisory ratings and financial data, while large and highly complex institutions use a scorecard incorporating supervisory marks, stress resilience metrics and the potential severity of a loss to the FDIC the firm's demise could pose.
The DIF's reserve ratio — its balance relative to total insured deposits system-wide — by law, must stay above a 1.35% statutory minimum. If it falls short, the FDIC must adopt a "restoration plan" to bring the ratio back up. If the reserve ratio were calculated using the assessment base instead of just insured deposits, the denominator would be significantly larger — effectively lowering the reserve ratio and thus making the Deposit Insurance Fund's ratio more favorable than it under the current calculation.
The fund has been under a restoration plan since 2020, when COVID-era stimulus checks resulted in a wave of deposits that pulled the reserve ratio below its legal floor. According to the
Hill did not suggest changes to the existing restoration plan.
During the closed portion of the FDIC meeting — which was also attended by acting Comptroller of the Currency Rodney Hood and acting CFPB Director Russell Vought — the FDIC issued a final rule to rescind its 2024
The move will nullify standards finalized in 2024, reinstating the prior bank merger standards that were issued in 2008. The final rule will go into effect 30 days following publication in the Federal Register.
