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From Banking and Finance Law Daily, August 30, 2016

Most banks to see reduction in deposit insurance assessments

By John M. Pachkowski, J.D.

Citing an increase in the Deposit Insurance Fund Reserve Ratio to 1.17 percent, the Federal Deposit Insurance Corporation has notified banks that a number of changes will be reflected in their December 2016 deposit insurance assessment invoices. The FDIC provided its notice to banks in FIL-58-2016.

The changes to the assessment are occurring since the Reserve Ratio surpassed 1.15 percent before July 1, 2016 and as required by a series of rulemakings by the FDIC.

Assessment reduction. The first change, as required by a 2011 rulemaking, will reduce the range of initial assessment rates for all banks from 5-35 basis points to 3-30 basis points. This translates into banks now paying between 3 cents and 30 cents per $100 of their assessment base.

Surcharges. The second change, based on a March 2016 rulemaking, applies to banks with over $10 billion assets. These banks will pay a quarterly surcharge, in addition to regular assessments, equal to an annual rate of 4.5 basis points, or 4.5 cents per $100 of their assessment base. The surcharge is intended to bring the reserve ratio to the statutory minimum of 1.35 percent required by the Dodd-Frank Act. The surcharges are temporary and are expected to last approximately eight quarters. Small banks will receive assessment credits for the portion of their assessments that contribute to the increase to 1.35 percent.

In March 2015, the FDIC predicted that that the Reserve Ration is expected to meet statutory minimum of 1.35 percent by the end of 2018 (see Banking and Finance Law DailyMarch 15, 2015).

Small bank pricing. The final change, which affects banks with less than $10 billion in assets, is based on a rulemaking approved by the FDIC’s board of directors in April 2016. The rulemaking better aligns bank insurance deposit assessments with risk by revising the methodology to estimate the probability of failure within three years to ensure that banks that take on greater risks will pay more for deposit insurance (see Banking and Finance Law DailyApril 26, 2015).

The FDIC noted that the method change is revenue-neutral, meaning aggregate assessment revenue collected from established small banks is expected to be approximately the same as it would have been using the prior method.

Commenting on the changes, FDIC Chairman Martin J. Gruenberg noted, "Assessment rates for 93 percent of institutions with less than $10 billion in assets are expected to decline." He added, "On average, regular quarterly assessments are expected to decline by about one-third for these smaller institutions. The improvement in the Deposit Insurance Fund since the financial crisis reflects progress in implementing the long-term fund management plan put into place by the FDIC in the post-crisis period, as well as improving conditions in the banking industry."

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