Federal Register Extracts

Agency: "Federal Deposit Insurance Corporation (FDIC)."

SUMMARY: The FDIC is seeking comment on a proposed rule that would increase initial base deposit insurance assessment rates by 2 basis points, beginning with the first quarterly assessment period of 2023. The proposal would increase the likelihood that the reserve ratio would reach the required minimum level of 1.35 percent by the statutory deadline of September 30, 2028, consistent with the FDIC's Amended Restoration Plan, and is intended to support growth in the Deposit Insurance Fund (DIF or fund) in progressing toward the FDIC's long-term goal of a 2 percent Designated Reserve Ratio (DRR).

DATES: Comments must be received no later than August 20, 2022.

ADDRESSES: You may submit comments on the notice of proposed rulemaking using any of the following methods:

* Agency Website: https://www.fdic.gov/resources/regulations/federal-register-publications/. Follow the instructions for submitting comments on the agency website.

* Email: [email protected]. Include RIN 3064-AF83 on the subject line of the message.

* Mail: James P. Sheesley, Assistant Executive Secretary, Attention: Comments--RIN 3064-AF83, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429.

* Hand Delivery: Comments may be hand delivered to the guard station at the rear of the 550 17th Street NW, building (located on F Street NW) on business days between 7 a.m. and 5 p.m.

* Public Inspection: Comments received, including any personal information provided, may be posted without change to https://www.fdic.gov/resources/regulations/federal-register-publications/. Commenters should submit only information that the commenter wishes to make available publicly. The FDIC may review, redact, or refrain from posting all or any portion of any comment that it may deem to be inappropriate for publication, such as irrelevant or obscene material. The FDIC may post only a single representative example of identical or substantially identical comments, and in such cases will generally identify the number of identical or substantially identical comments represented by the posted example. All comments that have been redacted, as well as those that have not been posted, that contain comments on the merits of this document will be retained in the public comment file and will be considered as required under all applicable laws. All comments may be accessible under the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: Michael Spencer, Associate Director, Financial Risk Management Branch, 202-898-7041, [email protected]; Ashley Mihalik, Chief, Banking and Regulatory Policy, 202-898-3793, [email protected]; Kayla Shoemaker, Senior Policy Analyst, 202-898-6962, [email protected]; Sheikha Kapoor, Senior Counsel, 202-898-3960, [email protected]; Ryan McCarthy, Senior Attorney, 202-898-7301, [email protected].

SUPPLEMENTARY INFORMATION:

I. Legal Authority and Policy Objectives The FDIC, under its general rulemaking authority in Section 9 of the Federal Deposit Insurance Act (FDI Act), and its specific authority under Section 7 of the FDI Act to set assessments, is proposing to increase initial base deposit insurance assessment rates by 2 basis points, effective January 1, 2023, and applicable to the first quarterly assessment period of 2023 (i.e., January 1-March 31, 2023). /1/

FOOTNOTE 1 See 12 U.S.C. 1817 and 1819. END FOOTNOTE

The proposed increase in initial base assessment rates is intended to achieve two objectives. First, the proposal is intended to increase assessment revenue in order to build the DIF, which is used to pay deposit insurance in the event of failure of an insured depository institution (IDI), and to restore the reserve ratio to the statutory minimum of 1.35 percent within the deadline set by statute, consistent with the Restoration Plan, as amended by the FDIC Board of Directors (Board) on June 21, 2022 (Amended Restoration Plan). /2/ While the banking industry has remained a source of strength for the economy and the DIF has experienced low losses from IDI failures in recent years, slowing growth in the fund balance combined with continued elevated estimated insured deposit levels, described below, have decreased the likelihood that the reserve ratio will meet the statutory minimum by September 30, 2028. /3/ The proposal would increase the likelihood that the reserve ratio will meet the statutory minimum by the required deadline and reduce the likelihood that the FDIC would need to raise assessment rates during a potential future period of banking industry stress.

FOOTNOTE 2 Under the FDI Act, a restoration plan must restore the reserve ratio to at least 1.35 percent within 8 years of establishing the restoration plan, absent extraordinary circumstances. See 12 U.S.C. 1817(b)(3)(E). The reserve ratio is calculated as the ratio of the net worth of the DIF to the value of the aggregate estimated insured deposits at the end of a given quarter. See 12 U.S.C. 1813(y)(3). END FOOTNOTE

FOOTNOTE 3 12 U.S.C. 1817(b)(3)(E)(ii). As used in this proposed rule, the term "bank" is synonymous with the term "insured depository institution" as it is used in section 3(c)(2) of the FDI Act, 12 U.S.C. 1813(c)(2). END FOOTNOTE

Second, the proposed change in assessment rates is further intended to support growth in the DIF in progressing toward the 2 percent DRR. Therefore, the proposed assessment rate schedules would remain in effect unless and until the reserve ratio meets or exceeds 2 percent, absent further Board action. This continued growth in the DIF is intended to reduce the likelihood that the FDIC would need to consider a potentially pro-cyclical assessment rate increase, and to increase the likelihood of the DIF remaining positive through potential future periods of significant losses due to bank failures, consistent with the FDIC's long-term fund management plan. /4/ A sufficiently large fund is a necessary precondition to maintaining a positive fund balance during a banking crisis and allowing for long-term, steady assessment rates. Accomplishing these objectives also would continue to ensure public confidence in federal deposit insurance.

FOOTNOTE 4 See 75 FR 66273 (Oct. 27, 2010) and 76 FR 10672 (Feb. 25, 2011). END FOOTNOTE

II. Background

A. Restoration Plan

Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the DIF reserve ratio to decline below the statutory minimum of 1.35 percent. /5/ As of June 30, 2020, the reserve ratio had fallen below the statutory minimum and stood at 1.30 percent. The FDI Act requires that the Board adopt a restoration plan when the DIF reserve ratio falls below the statutory minimum of 1.35 percent or is expected to within 6 months. /6/ On September 15, 2020, the Board adopted the Restoration Plan to restore the DIF to at least 1.35 percent by September 30, 2028. /7/

FOOTNOTE 5 See 12 U.S.C. 1817(b)(3)(B). END FOOTNOTE

FOOTNOTE 6 See 12 U.S.C. 1817(b)(3)(E). END FOOTNOTE

FOOTNOTE 7 See 85 FR 59306 (Sept. 21, 2020). END FOOTNOTE

In its June 21, 2022, semiannual update to the Board, FDIC projections of the reserve ratio under different scenarios reflected that the reserve ratio is at risk of not reaching 1.35 percent by September 30, 2028, the end of the statutory 8-year period. /8/ The scenarios are based on updated data and analysis and incorporate different rates of insured deposit growth and weighted average assessment rates, including sustained elevated insured deposit balances and lower assessment rates than previously anticipated. On June 21, 2022, the Board approved the Amended Restoration Plan, which reflects an increase in initial base deposit insurance assessment rates of 2 basis points, beginning with the first quarterly assessment period of 2023. Accordingly, the FDIC is concurrently publishing in the Federal Register an Amended Restoration Plan.

FOOTNOTE 8 See FDIC Restoration Plan Semiannual Update, June 21, 2022. Available at https://www.fdic.gov/news/board-matters/2022/2022-06-21-notice-sum-b-mem.pdf. END FOOTNOTE

B. Designated Reserve Ratio

The FDI Act requires that the Board designate a reserve ratio for the DIF and publish the DRR before the beginning of each calendar year. /9/ The Board must set the DRR in accordance with its analysis of certain statutory factors: risk of losses to the DIF; economic conditions generally affecting IDIs; preventing sharp swings in assessment rates; and any other factors that the Board determines to be appropriate. /10/

FOOTNOTE 9 Section 7(b)(3)(A) of the FDI Act, 12 U.S.C. 1817(b)(3)(A). The DRR is expressed as a percentage of estimated insured deposits. END FOOTNOTE

FOOTNOTE 10 Section 7(b)(3)(C) of the FDI Act, 12 U.S.C. 1817(b)(3)(C). END FOOTNOTE

In 2010, the FDIC proposed and later adopted a comprehensive, long-term management plan for the DIF with the following goals: (1) reduce the pro-cyclicality in the existing risk-based assessment system by allowing moderate, steady assessment rates throughout economic and credit cycles; and (2) maintain a positive fund balance even during a banking crisis by setting an appropriate target fund size and a strategy for assessment rates and dividends. /11/ Based on the FDIC's experience through two banking crises, the analysis concluded that a long-term moderate, steady assessment rate of 5.29 basis points would have been sufficient to prevent the fund from becoming negative during the crises. /12/ The FDIC also found that the fund reserve ratio would have had to exceed 2 percent before the onset of the last two crises to achieve these results. /13/

FOOTNOTE 11 See 75 FR 66272 (Oct. 27, 2010) (October 2010 NPR) and 76 FR 10672 (Feb. 25, 2011). END FOOTNOTE

FOOTNOTE 12 See 75 FR 66273 and 76 FR 10675. END FOOTNOTE

--This is a summary of a Federal Register article originally published on the page number listed below--

Notice of proposed rulemaking.

CFR Part: "12 CFR Part 327"

RIN Number: "RIN 3064-AF83"

Citation: "87 FR 39388"

Federal Register Page Number: "39388"

"Proposed Rules"