FDIC’s Hill rethinking deposit insurance fees

Federal Deposit Insurance Corp. Acting Chair Travis Hill Tuesday suggested the agency consider changing how it charges banks for their access to deposit insurance to more closely represent their risk to the Deposit Insurance Fund. 

Hill, in comments at the FDIC’s first open board meeting since taking over for former FDIC Chair Martin Gruenberg in January, suggested that calculating the DIF’s reserve ratio using only banks’ insured deposits may no longer make sense. 

“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. “One alternative permitted by the FDI act is to use the assessment base, rather than insured deposits, as the denominator of the reserve ratio, and I’ve asked staff to analyze this option for future consideration.”

Banks pay quarterly assessments to the FDIC to support the DIF, which insures depositor funds up to the legal limit, in most cases $250,000. The size of each bank’s assessment is calculated considering the bank’s risk profile and assets. Currently banks pay assessments on their total liabilities, not just their insured deposits. Small banks — or those with under $10 billion in assets — are assigned rates using a formula based on supervisory ratings and financial data, while large and highly complex institutions use a scorecard incorporating supervisory marks, stress resilience metrics and the potential severity of a loss to the FDIC the firm’s demise could pose. 

The DIF’s reserve ratio — its balance relative to total insured deposits system-wide — by law, must stay above a 1.35% statutory minimum. If it falls short, the FDIC must adopt a “restoration plan” to bring the ratio back up. If the reserve ratio were calculated using the assessment base instead of just insured deposits, the denominator would be significantly larger — effectively lowering the reserve ratio and thus making the Deposit Insurance Fund’s ratio more favorable than it under the current calculation.

The fund has been under a restoration plan since 2020, when COVID-era stimulus checks resulted in a wave of deposits that pulled the reserve ratio below its legal floor. As of January 2023, the FDIC charged banks an extra two basis points in what’s known as a “special assessment” to help rebuild the fund. According to the latest update, the DIF stood at $137.1 billion as of year-end 2024, up $7.9 billion from June 2024. The fund is on track to meet the 1.35% target ahead of the September 2028 deadline. FDIC staff project it could hit that mark by the end of the year, though those projections are subject to change. Hill did not suggest changes to the existing restoration plan.

During the closed portion of the FDIC meeting — which was also attended by Acting Comptroller of the Currency Rodney Hood and Acting CFPB Director Russell Vought — the FDIC issued a final rule to rescind its 2024 merger statement of policy. The proposal to rescind the statement was published in March. 

The move will nullify standards finalized in 2024, reinstating the prior bank merger standards that were issued in 2008. The final rule will go into effect 30 days following publication in the Federal Register.

“The rescission of the 2024 Statement of Policy and reinstatement of the Bank Merger Statement of Policy was approved by the Board in light of concerns that the 2024 [SOP] added considerable uncertainty to the merger application process,” an FDIC memo on Tuesday noted. “A perception developed among stakeholders that the FDIC’s merger application review process became less transparent and predictable, leaving prospective applicants unclear about the prospects for approval and the resources and time needed for the merger application process.”