The Federal Deposit Insurance Corporation (FDIC) has recently provided an update on its Restoration Plan for the Deposit Insurance Fund (DIF). The FDIC is implementing a plan to ensure the DIF’s reserve ratio, which is the ratio of the fund balance relative to insured deposits, remains at or above 1.35 percent as mandated by the Federal Deposit Insurance Act (FDI Act).
In September 2020, the FDIC established the Restoration Plan to restore the DIF reserve ratio to at least 1.35 percent by September 30, 2028. This action became necessary due to significant deposit growth during the first half of 2020, causing the reserve ratio to dip below the required minimum. The plan initially retained the assessment rate schedules in place at the time.
However, on June 21, 2022, the FDIC Board amended the Restoration Plan as projections indicated that the reserve ratio was at risk of not reaching the required minimum by the statutory deadline. As part of the amended plan, the FDIC increased deposit insurance assessment rates by 2 basis points for all insured depository institutions, effective in the first quarterly assessment period of 2023.
Despite the increase in insurance premiums, the failures of Silicon Value Bank and other banks led to a decline in the DIF balance. As of June 30, 2023, the DIF balance stood at $117 billion. Increased loss provisions, including those for the bank failures, combined with robust insured deposit growth, resulted in the reserve ratio dropping from 1.25 percent as of December 31, 2022, to 1.10 percent as of June 30, 2023.
However, the FDIC projects that the reserve ratio is likely to reach the statutory minimum of 1.35 percent by the regulatory deadline of September 30, 2028. It’s important to note that these projections are based on assumptions that interest rates will not remain as high as they were in 2023. Additionally, the projections do not account for potential changes in the concentration of deposits for large banks, such as restructuring, spin-offs, or competing with smaller banks’ interest rates.
It is essential for financial institutions to stay informed about the updates and changes implemented by the FDIC in the Restoration Plan. Adhering to regulatory compliance and risk management practices ensures a stable and secure banking system.
If you are looking for trusted insight and knowledge expertise in the financial services industry, Perficient’s Financial Services digital solutions can provide valuable assistance. With a wide array of services expertise and digital leadership across platforms and business needs, Perficient can help organizations solve complex challenges and drive growth in a compliant manner. Contact Perficient today to learn more.
Frequently Asked Questions
Q: What is the purpose of the FDIC Restoration Plan?
A: The purpose of the FDIC Restoration Plan is to ensure that the Deposit Insurance Fund (DIF) maintains a reserve ratio of at least 1.35 percent, as required by the Federal Deposit Insurance Act (FDI Act). This plan aims to recapitalize the DIF and protect insured deposits in the event of bank failures.
Q: Why did the FDIC amend the Restoration Plan?
A: The FDIC Board amended the Restoration Plan in response to projections indicating that the reserve ratio was at risk of not reaching the required minimum by the statutory deadline. The amendment included an increase in deposit insurance assessment rates for insured depository institutions.
Q: How does the decline in the DIF balance impact the reserve ratio?
A: The decline in the DIF balance, caused by bank failures and increased loss provisions, among other factors, resulted in a drop in the reserve ratio. As of June 30, 2023, the reserve ratio stood at 1.10 percent, below the required minimum of 1.35 percent.
Q: What factors are not accounted for in the FDIC’s projections?
A: The FDIC’s projections do not assume that interest rates will remain as high compared to 2023. Additionally, the projections do not account for potential changes in the concentration of deposits for large banks, such as restructuring, spin-offs, or competition with smaller banks’ interest rates.
Q: How can financial institutions stay informed about the changes in the Restoration Plan?
A: Financial institutions can stay informed about the changes in the Restoration Plan by regularly reviewing updates and communications from the FDIC. Consulting with regulatory compliance and risk management professionals can also provide valuable insights and guidance.
0 Comments