THE DEPOSIT INSURANCE FUND
The primary purposes of the Deposit Insurance Fund (DIF) are: (1) to insure the deposits and protect the depositors of insured banks and (2) to resolve failed banks. The DIF is funded mainly through quarterly assessments on insured banks, but also receives interest income on its securities. The DIF is reduced by loss provisions associated with failed banks and by FDIC operating expenses. Some links on this page are PDF files. For assistance with this format, see PDF Help.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) revised the FDIC's fund management authority by setting requirements for the Designated Reserve Ratio (DRR) and redefining the assessment base, which is used to calculate banks' quarterly assessments. (The reserve ratio is the DIF balance divided by estimated insured deposits.) In response to these statutory revisions, the FDIC developed a comprehensive, long-term management plan for the DIF designed to reduce pro-cyclicality and achieve moderate, steady assessment rates throughout economic and credit cycles while also maintaining a positive fund balance even during a banking crisis. The FDIC Board adopted the existing assessment rate schedules and a 2.0 percent DRR pursuant to this plan. Calculation of the DRR, assessment rates, and current rate schedules are explained in more detail below.
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Reserve Ratio
The Federal Deposit Insurance Act requires the FDIC's Board to set a target or DRR for the DIF annually. Since 2010, the Board has adopted a 2.0 percent DRR each year. An analysis using historical fund loss and simulated income data from 1950 to 2010 showed that the reserve ratio would have had to exceed 2.0 percent before the onset of the two crises that occurred during the past 30 years to have maintained both a positive fund balance and stable assessment rates throughout both crises. The FDIC views the 2.0 percent DRR as a long-term goal and the minimum level needed to withstand future crises of the magnitude of past crises.
[Read More]Staff Papers
- Building Credible and Effective Deposit Insurance Systems (November 2016)
- Deposit Insurance Funding: Assuring Confidence (November 2013)
Elevated levels of bank failures, especially in 2009 and 2010, resulted in a decline in the reserve ratio. The Dodd-Frank Act establishes a minimum DRR of 1.35 percent and requires that the FDIC return the reserve ratio to that level by September 30, 2020.1 In October 2010, under the comprehensive plan, the FDIC adopted a Restoration Plan to ensure that the reserve ratio reaches 1.35 percent by this deadline. Pursuant to the Restoration Plan, the FDIC’s Board adopted the current set of assessment rates, which are designed to ensure that the reserve ratio reaches the statutory minimum by the statutory deadline. Pursuant to the long-term fund management plan, the Board also adopted a lower set of assessment rates that will automatically become effective once the reserve ratio reaches 1.15 percent.2
Although the Dodd-Frank Act allows the FDIC’s Board to issue dividends from the DIF if the reserve ratio exceeds 1.5 percent, the Board has suspended dividends indefinitely under the comprehensive plan to increase the probability that the reserve ratio will reach a level sufficient to withstand a future crisis. In lieu of dividends, the Board adopted a set of progressively lower assessment rates when the reserve ratio exceeds 2.0 percent and 2.5 percent. These lower rates serve much the same function as dividends, but provide more stable and predictable effective assessment rates.
For more information:
- Deposit Insurance Fund Management - Summary of Dodd-Frank requirements affecting the reserve ratio, as well as historical DRRs and actions the FDIC Board has taken pursuant to management of the DIF.
- Final Rule; Designated Reserve Ratio - PDF (PDF Help) - Describes the comprehensive, long-range management plan for the DIF and sets the DRR at 2.0 percent.
1 After having reached 1.35 percent, if the reserve ratio falls below 1.35 percent, or if the FDIC projects that the reserve ratio will, within 6 months, fall below 1.35 percent, the FDIC must adopt a restoration plan that provides that the DIF will return to 1.35 percent within 8 years (or longer if the FDIC finds it necessary due to extraordinary circumstances).
2 The Act also requires that the FDIC offset the effect on banks with less than $10 billion in assets of increasing the reserve ratio from 1.15 percent to 1.35 percent. The FDIC will promulgate a rulemaking that implements this requirement at a later date to better take into account prevailing industry conditions at the time of the offset.
Assessments
A bank's assessment is calculated by multiplying its assessment rate by its assessment base. A bank's assessment base and assessment rate are determined each quarter.
From the beginning of the FDIC until 2010, a bank's assessment base was about equal to its total domestic deposits. As required by the Dodd-Frank Act, however, the FDIC amended its regulations effective April 2011 to define a bank's assessment base as its average consolidated total assets minus its average tangible equity.
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By statute, assessment rates must be risk based. The method for determining a bank's risked-based assessment rate differs for small banks and large banks, however. Small banks (generally, those with less than $10 billion in assets) are assigned an individual rate based on a formula using financial data and CAMELS ratings.
Large banks (generally, those with $10 billion or more in assets) are assigned an individual rate based on a scorecard.3 The scorecard combines the following measures to produce a score that is converted to an assessment rate: CAMELS component ratings, financial measures used to measure a bank's ability to withstand asset-related and funding-related stress, and a measure of loss severity that estimates the relative magnitude of potential losses to the FDIC in the event of the bank's failure.
Assessment rates for both large and small banks are subject to adjustment. Assessment rates: (1) decrease for issuance of long-term unsecured debt, including senior unsecured debt and subordinated debt; (2) increase for holdings of long-term unsecured or subordinated debt issued by other insured banks (the Depository Institution Debt Adjustment or DIDA); and (3) for large banks that are not well-rated or not well-capitalized, increase for significant holdings of brokered deposits.
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Total base Assessment Rates for established institutions (insured 5 or more years)* |
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| Small Banks | Large & Highly Complex Institutions | |
|---|---|---|
| Initial Base Assessment Rate | 3 to 30 | 3 to 30 |
| Unsecured Debt Adjustment (added) *** | -5 to 0 | -5 to 0 |
| Brokered Deposit Adjustment (added) | N/A | 0 to 10 |
| Total Base Assessment Rate | 1.5 to 30 | 1.5 to 40 |
|
* Total base assessment rates do not include the depository institution debt adjustment. |
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| Total Base Assessment Rates for newly insured small institutions (those insured less than 5 years) * |
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| Risk Category I | Risk Category II | Risk Category III | Risk Category IV | |
|---|---|---|---|---|
| Initial Base Assessment Rate | 7 | 12 | 19 | 30 |
| Brokered Deposit Adjustment (added) | N/A | 0 to 10 | 0 to 10 | 0 to 10 |
| Total Base Assessment Rate | 7 | 12 to 22 | 19 to 29 | 30 to 40 |
For more information:
- Deposit Insurance Assessments - Provides a comprehensive overview of deposit insurance assessments, including information on the quarterly invoicing process, compliance reviews of assessment reporting, and prior period rates.
- Final Rule of Assessments, Dividends, Assessment Base, and Large Bank Pricing - PDF (PDF Help) - Implements changes to the assessment base, rate schedules, and dividends, pursuant to Dodd-Frank Act changes. Revises the large bank assessment system to the scorecard method to better differentiate for risk and better take into account losses from large bank failures.
- Questions and Answers Pertaining to the Final Rule on Assessments, Dividends, Assessment Base, and Large Bank Pricing (Last Updated 9/28/11) - PDF (PDF Help)
- Final Rule on Assessments, Large Bank Pricing Changes to Definitions of Higher Risk Assets - PDF (PDF Help) - Revises definitions used to determine assessment rates for large banks.
- Questions and Answers Pertaining to the Final Rule on Assessments, Large Bank Pricing Changes to Definitions of Higher-Risk Assets (Last Updated 01/20/2015) - PDF (PDF Help)
- Final Rule of Regulatory Capital Rules: Regulatory Capital, Revisions to the Supplementary Leverage Ratio - PDF (PDF Help) - Revises the definition of the denominator of the supplementary leverage ratio.
3 Technically, there are two scorecards, one for most large banks and one for a few highly complex banks. The scorecards are similar but not identical.