WASHINGTON — The Obama administration on Monday called for a higher level of funding from the industry to help the Federal Deposit Insurance Corp. deal with failures.
In its 2011 budget, the White House proposed raising the agency’s target reserve level more than 25 basis points, to exceed 1.5% of insured deposits. Under current law, the reserve ratio of the Deposit Insurance Fund must float between a range of 1.15% and 1.5%. The FDIC has set a target of 1.25%.
But the budget said that the financial crisis and the savings and loan debacle "have shown that the current designated reserve ratio of 1.15 to 1.5 percent is inadequate to handle the unexpected risks and losses that come with a downturn in the economy."
"In the future, it may be appropriate to consider raising the target to a level above 1.5 percent in order to maintain positive fund balances during future downturns," the administration said.
The surprising move would likely mean a much higher premium burden for banks over coming years.
Under current law, the FDIC must issue rebates to banks if the ratio exceeds 1.5%, and come up with a restoration plan when the ratio falls below 1.15%.
But that system has been thrown out of whack by the current crisis. Amid a rush of failures, the fund is insolvent, and the agency has charged a three-year assessment prepayment of $45 billion to return the fund’s ratio — which was negative -0.16% on Sept. 30 — to 1.15% by 2018.