The Federal Deposit Insurance Corporation (FDIC) released an update on Dec. 7 for its restoration plan for the Deposit Insurance Fund (DIF).
The Federal Deposit Insurance Act (FDI Act) requires that the FDIC Board adopt a restoration plan when the DIF’s reserve ratio falls below 1.35 percent. The reserve ratio is the percentage of the fund balance relative to insured deposits.
As of June 30, 2023, the DIF balance stood at $117.0 billion. Increased loss provisions, including for the bank failures that occurred in March and May, coupled with strong insured deposit growth, resulted in a decline in the reserve ratio from 1.25 percent as of December 31, 2022, to 1.10 percent as of June 30, 2023.
However, despite this decline, the FDIC projects that the reserve ratio will reach the statutory minimum of 1.35 percent by the statutory deadline of September 30, 2028.
Back on June 21, 2022, based on projections indicating that the reserve ratio was at risk of not reaching the required minimum by the statutory deadline, the FDIC Board amended the restoration plan. In effect, the board increased the deposit insurance assessment rates by 2 basis points for all insured depository institutions, effective in the first quarterly assessment period of 2023.
Thus, the increase in assessment rate schedules that became effective on Jan. 1, 2023, resulted in additional assessment revenue that slightly offset the decline in the DIF in the first half of 2023.
“Had this rate increase not already been in effect, the Board might have been faced with a different projected path for the reserve ratio, and potential need for further current action, given the period of stress and the bank failures earlier this year,” FDIC Chairman Martin Gruenberg said.