The Federal Deposit Insurance Corporation issued a statement entitled, "FDIC Approves Final Rule of Assessments, Dividends, Assesment Base and Large Bank Pricing," which says, "The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) today approved a final rule on Assessments, Dividends, Assessment Base and Large Bank Pricing. The rule implements changes to the deposit insurance assessment system mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act and revises the assessment system applicable to large banks to eliminate reliance on debt issuer ratings and make it more forward looking. Dodd-Frank required that the base on which deposit insurance assessments are charged be revised from one based on domestic deposits to one based on assets." (See the full "Final Rule of Assessments, Dividends, Assessment Base, & Large Bank Pricing" here.)
The FDIC's release continues, "In November 2010, the Board approved a proposed rule to change the assessment base from adjusted domestic deposits to average consolidated total assets minus average tangible equity and reissued a proposed rule revising the deposit insurance assessment system for large institutions that was approved by the FDIC in April 2010. The Board approved a proposed rule on Assessment Dividends, Assessment Rates and the Designated Reserve Ratio in October 2010. The final rule encompasses all of these proposed rules."
Chairman Sheila Bair says, "This final rule accomplishes Dodd-Frank's goal of better reflecting risks to the deposit insurance fund, while also providing the industry greater certainty regarding what rates will be over the long run. By changing the assessment base from deposits to assets minus tangible equity, the Act allows the FDIC to charge deposit insurance assessments on secured liabilities, which we have always protected. The rule should keep the overall amount collected from the industry very close to unchanged, although the amounts that individual institutions pay will be different."
The release explains, "The new large bank pricing system will result in higher assessment rates for banks with high-risk asset concentrations, less stable balance sheet liquidity, or potentially higher loss severity in the event of failure. Over the long term, large institutions that pose higher risk will pay higher assessments when they assume these risks rather than when conditions deteriorate."
Bair adds, "The new large bank pricing system in this final rule goes a long way towards reducing pro-cyclicality by calculating assessment payments using more forward-looking measures.... In light of the interest rate environment and the assessment rate benefit we provide, I encourage banks to issue more long-term unsecured debt to lock in low rates and provide greater stability to their funding."
Finally, the FDIC says, "The final rule also revises the assessment rate schedule effective April 1, 2011, and adopts additional rate schedules that will go into effect when the Deposit Insurance Fund (DIF) reserve ratio reaches various milestones. These future rate schedules should accomplish the goals of maintaining a positive fund balance, even during periods of large fund losses, and maintaining steady, predictable assessment rates throughout economic and credit cycles."
