Deposit Insurance

Position

• Our nation’s federal deposit insurance system is critical to depositor confidence in the banking system, to the protection of small depositors, and to the funding base of community banks.

• ICBA supports a deposit insurance assessment framework that is appropriately tiered and risk weighted.

• ICBA opposes sharp, procyclical increases to deposit insurance assessments.

• ICBA strongly opposes special assessments for community banks when the FDIC utilizes the systemic risk exception to resolve large, risky, and TBTF banks.

• ICBA encourages the FDIC to create a systemic risk premium, which would require the nation’s largest TBTF institutions to pay a premium on their deposit insurance assessments based on the unique risk they pose to the DIF in the event one of these institutions required resolution.

• ICBA urges Congress to ensure the FDIC has needed authority to quickly authorize a Transaction Account Guarantee (TAG) program to protect depositors without needing to make any determinations of systemic risk. ICBA has historically supported TAG programs that provide increased deposit insurance for noninterest bearing accounts to prevent or stabilize disruptive shifts in deposit funding.

• ICBA opposes increases to deposit insurance assessments that are based on the DIF achieving a 2 percent designated reserve ratio rather than the statutory minimum of 1.35 percent.

Background

Deposit insurance has been the stabilizing force of our nation’s banking system for more than 85 years. It promotes public confidence by providing safe and secure depositories for small businesses and individuals alike.

Deposit Insurance Fund Restoration Plan

The Federal Deposit Insurance Act requires the FDIC to maintain a minimum reserve ratio for the DIF of 1.35 percent and to establish a Deposit Insurance Fund Restoration Plan if the reserve ratio falls below the statutory minimum.

Nonetheless, the FDIC published a final rule in 2022 which uniformly increased the base deposit insurance assessment rate for all banks by 2 basis points until the DIF reaches a “designated reserve ratio” of 2 percent. The 2 percent goal is the FDIC’s long-term goal for the DIF reserve ratio – it is not a ratio the FDIC is required, under any law, to maintain.

Special Assessments

The Dodd-Frank Act limited the FDIC’s authority to quickly authorize a temporary Transaction Account Guarantee (TAG) program. In the absence of this authority, the FDIC must invoke the “systemic risk exception” to the “least-cost resolution” requirement to guarantee the uninsured deposits of failing institutions. Doing so triggers a requirement the FDIC collect special assessments from the banking industry to offset costs incurred by the DIF.

ICBA championed advocacy efforts in 2023 and was the only national trade association to advocate for a community bank exemption from special assessments, resulting in a final rule exempting all community banks with fewer than $5 billion in uninsured deposits from paying any special assessment for the failures of Silicon Valley Bank and Signature Bank.