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FDIC Releases Latest Information Regarding the Deposit Insurance Restoration Plan

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This blog post was co-authored by: Carl Aridas

In a recent blog post, Perficient’s Financial Services Risk and Regulatory Center of Excellence (CoE) highlighted the Federal Deposit Insurance Corporation (FDIC) plan to implement a “Robin Hood-like” deposit insurance premium on the nation’s largest banks to recapitalize the agency’s Deposit Insurance Fund.

Since that blog was published, the FDIC has issued an update on its Restoration Plan for the Deposit Insurance Fund (DIF). The Federal Deposit Insurance Act (FDI Act) requires the FDIC Board to adopt a restoration plan when the DIF’s reserve ratio—the ratio of the fund balance relative to insured deposits—falls below 1.35 percent.

READ MORE: Decoding SVB’s Failure & FDIC’s Special Assessment

In a focused review of the last few years, on September 15, 2020, the FDIC established the Restoration Plan to restore the DIF reserve ratio to at least 1.35 percent by the statutory deadline of September 30, 2028. This action became necessary due to extraordinary deposit growth during the first half of 2020, causing the DIF’s reserve ratio to dip below 1.35 percent. The Plan retained the assessment rate schedules in place at the time.

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. However, a year later, the FDIC projected that the DIF reserve is likely to reach 1.35 percent by September 30, 2028.

In conjunction with the Amended Restoration Plan, the FDIC Board increased deposit insurance assessment rates by 2 basis points for all insured depository institutions, effective in the first quarterly assessment period of 2023.

DIF Balances in 2023

However, 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 $117B. Increased loss provisions, including those for the bank failures, combined with robust insured deposit growth, resulted in the reserve ratio from 1.25 percent as of December 31, 2022, to 1.10 percent as of June 30, 2023.

LEARN MORE: Regulatory Risk & Compliance in Financial Services

Despite this decline, the FDIC projects that the reserve ratio is likely to reach the statutory minimum of 1.35 percent by the statutory deadline of September 30, 2028. It’s important to note that these projections don’t assume interest rates will remain as high compared to 2023. This also doesn’t account for the concentration of deposits for some of the largest banks dissipated via restructuring, spin-offs, or competing with smaller banks’ interest rates.

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Thoughts on “FDIC Releases Latest Information Regarding the Deposit Insurance Restoration Plan”

  1. A thorough and insightful analysis of the FDIC’s Restoration Plan and the challenges it faced, especially with Silicon Value Bank’s failure. Your detailed breakdown of the timeline and adjustments made by the FDIC provides a clear understanding of the situation. It’s encouraging to see the projections indicating a recovery in the DIF reserve ratio despite the setbacks. Your post provides valuable insights into the complexities of financial regulation and the resilience needed to navigate uncertainties. Well-written and informative!

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Ashley Simmons

Ashley has over 20 years of experience in financial services, managing and collaborating on large-scale economic initiatives. Her expertise involves overseeing and driving solutions to support risk and regulatory compliance scopes. She has hands-on experience conducting risk data analysis, technology-based issue management analysis, third-party risk management lifecycle processes, transformation process improvement, Senior Technical Writing, and auditing Federal Reserve/CFPB/OCC-related initiatives.  

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