A recent proposal from the Federal Deposit Insurance Corp. would raise the asset threshold for what is considered a small bank when determining assessment fees and offer large banks incentives to reduce their annual assessments.
A June 25 notice of proposed rulemaking would raise the asset threshold for a bank to have its deposit insurance fund (DIF) assessment calculated under the small institution framework to $30 billion from $10 billion. Under the proposed change, 76 banks currently considered large would be deemed small. That threshold would also be adjusted every four years to reflect inflation.
Under current rules, banks with less than $10 billion in assets that have been insured for at least five years are subject to the small established institutions method, which relies on financial ratios and CAMELS ratings to determine assessment rates. Large banks' assessment rate calculations use a more complex scorecard that considers factors like supervisory ratings, financial measures and potential loss severity.
The proposal would also decrease banks' initial base assessment rates by 2 basis points for small institutions and 1 basis point for large institutions. Large institutions would have an opportunity for a further reduction in their assessment rates by meeting certain resolution readiness criteria.
Large banks that establish a virtual data room (VDR) that includes information to help the FDIC market the bank in the event of failure can receive a half-basis-point reduction in their assessment rate.
"When Silicon Valley Bank failed, the bank was unable to quickly populate a VDR with accurate and complete information, which impeded the ability of potential bidders to conduct due diligence. The inability to quickly provide quality information can result in worse bids and/or a longer process, which ultimately increases cost to the DIF," FDIC Chairman Travis Hill said during a board meeting discussing the proposal.
Large banks could receive additional half-basis-point assessment reductions if they provide the FDIC with access to their service providers and internal systems to collect the data needed to market the banks. "This would allow the FDIC to better understand the institution's key IT platforms and enable the FDIC to quickly plug into the relevant systems upon failure to extract necessary information and data," Hill said.
The resolution-related reductions — if all large banks take advantage of them — and the proposed 1-basis-point reduction for large banks would lead to a roughly $3.4 billion decline in annual assessments for the DIF, equating to nearly 28% of current total annual assessments, the agency estimated.
But "banks that successfully opt into the [resolution readiness adjustment] are expected to cost the FDIC less upon failure, thus justifying a downward adjustment to premiums," Hill said.
