ARTICLE
24 June 2022

FDIC Amends Deposit Insurance Fund Restoration Plan And Proposes Increase In Assessment Rates

CW
Cadwalader, Wickersham & Taft LLP

Contributor

Cadwalader, established in 1792, serves a diverse client base, including many of the world's leading financial institutions, funds and corporations. With offices in the United States and Europe, Cadwalader offers legal representation in antitrust, banking, corporate finance, corporate governance, executive compensation, financial restructuring, intellectual property, litigation, mergers and acquisitions, private equity, private wealth, real estate, regulation, securitization, structured finance, tax and white collar defense.
Industry is likely to prefer the more gradual approach as proposed, but some may comment that just a 1 basis point increase could be sufficient.
United States Insurance

On June 21, the Federal Deposit Insurance Corporation ("FDIC") Board voted to amend the Deposit Insurance Fund ("DIF") restoration plan originally adopted in September 2020. As part of that amended restoration plan, the FDIC issued a Notice of Proposed Rulemaking ("NPR") to propose a universal increase in initial base deposit insurance rates of 2 basis points.

Comments on the NPR are due August 20, 2022. Among the questions the NPR poses is whether the FDIC should adopt an alternative plan with a one-time special assessment of 4.5 basis points. Industry is likely to prefer the more gradual approach as proposed, but some may comment that just a 1 basis point increase could be sufficient.

The Federal Deposit Insurance Act ("FDIA") sets a statutory minimum for the designated reserve ratio ("DRR"), currently designated by the FDIC as the DIF to average aggregate insured deposits of 1.35%. Because of the extraordinary growth in deposits that occurred in the first two quarters of 2020 for various reasons associated with the coronavirus pandemic, the DRR dropped to 1.30%, triggering the need for a restoration plan under the FDI Act. As of March 31, 2022, the DRR stood at 1.27%.

The FDIC noted that the proposed increase in deposit insurance assessment rates should increase the likelihood that the DIF will meet its minimum ratio of 1.35% prior to the statutorily mandated date of September 2028. Notwithstanding the statutory minimum of 1.35% for the DRR, the FDIC has stated that its long-term goal is to maintain a 2% DRR.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More