FDIC Rate Hike Proposal Fails the Test of Time

Data from FDIC’s recently published Quarterly Banking Profile and the continued rise in interest rates shows that an increase in the assessment rates banks pay into the Deposit Insurance Fund (DIF) would unnecessarily reduce businesses’ and households’ access to credit just as the economy slows

Washington, D.C. – The FDIC’s proposal to raise deposit insurance assessment rates would hurt lending and credit access at precisely the wrong time for the economy. New data shows that the proposal’s unrealistic assumptions — deposit inflows and zero returns on its portfolio of Treasury securities — do not hold up to reality, clearly demonstrating the proposal is both unnecessary and unjustified, BPI, ABA, CBA, ICBA, MBCA and NBA wrote today in a supplementary comment letter.
The FDIC has proposed raising deposit insurance assessment rates for banks by 2 basis points, which represents more than a 50 percent increase above the current weighted-average assessment rate that banks pay for deposit insurance. The FDIC wants to raise assessments based on an assumption that the fund will not meet its minimum level until 2027Q2 or 2034Q3. Correcting those assumptions to reflect recently published industry data, the trade associations suggest the statutory minimum will be satisfied in just a few months, sometime in 2023Q1. The FDIC’s proposed increase could exacerbate the effects of an economic downturn and would harm businesses and consumers that depend on bank credit, BPI and the broad coalition of banking trades warned in a previous comment letter.
What’s new: Data confirms the FDIC’s two key assumptions are incorrect. The second-quarter FDIC Quarterly Banking Profile and other data that have become available since the formal close of the public comment period on the FDIC’s proposal confirm that a rate increase is unwarranted and could be procyclical — intensifying the pressures of a recession. The QBP shows that deposits are falling, not rising. Moreover, the FDIC’s assumption that it will earn zero on its portfolio of Treasury securities becomes increasingly implausible the further Treasury yields rise. These two contradictions of the FDIC’s assumptions make it clear that the proposed increase is unjustified.
What they’re saying: “The most recent data makes the case against an imminent increase to deposit insurance assessment rates even more compelling and we encourage the FDIC not to implement one at this time.” – ABA, BPI, CBA, ICBA, MBCA and NBA in today’s comment letter.
The consequences: A rate increase at this time could reduce access to credit for customers and companies amid rising borrowing costs and high inflation. As noted in the initial letter, Congress intended to avoid assessment rate increases that are procyclical and amplify economic stress. An assessment rate increase next year would likely coincide with and exacerbate challenging conditions in the overall economy.
The ask: The FDIC should not increase deposit insurance assessment rates at this time.


About Bank Policy Institute.

The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.

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