FDIC Eyes Change in Reserve Ratio Calculation
Acting Chair Travis Hill suggested the agency use total liabilities rather than insured deposits as the denominator in the formula. The FDIC also rescinded a bank merger policy update from last year.
The Federal Deposit Insurance Corp.’s acting chair, Travis Hill, wants the agency to reconsider how it calculates the Deposit Insurance Fund’s reserve ratio, he said Tuesday in a statement. Hill suggested using the assessment base – generally, total liabilities (or total consolidated assets minus tangible equity) – as the denominator in the formula rather than insured deposits.
“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 Tuesday.
Banks pay into the DIF every quarter. Banks with less than $10 billion in assets are assigned rates using a formula that takes supervisory ratings and financial data into account. For larger institutions, meanwhile, the gauge is a mix of supervisory ratings, stress resilience metrics and the potential impact their failure could have on the FDIC.
By law, the DIF must hold a minimum reserve of 1.35% of the total amount of insured deposits systemwide – though that ratio has been under-funded since a massive surge in deposits that came at the start of the COVID-19 pandemic in 2020.
The ratio stood at 1.28% as of Dec. 31, the FDIC said Tuesday. That’s a jump of six basis points from June 2024. The FDIC in 2020 launched a plan to restore the reserve ratio to 1.35% by 2028, though officials last year said it would likely reach that benchmark by 2026. The agency expects another update on the ratio next week, when it releases the quarterly banking profile for January through March.
The FDIC board also issued a final rule Tuesday rescinding a statement of policy that would have more closely scrutinized mergers creating banks with more than $100 billion in assets. Under the policy, released last September, banks with $50 billion or more would have more closely considered the impact of tie-ups on local communities.
The policy allowed the FDIC to consider concentrations beyond deposits, including small business and residential loan originations, when evaluating a merger’s competitive effects. But the agency indicated in March that it would toss the 2024 policy and revert to standards that were issued in 2008.
The American Bankers Association applauded the move, calling the FDIC’s 2024 policy statement “flawed.”