New Fed Deposit Data Confirms Premise of FDIC Rate Hike is Wrong

Washington, D.C. – As is well demonstrated, the FDIC’s data assumptions that underlie the proposed assessment rate increase are incorrect, the Bank Policy Institute, American Bankers Association, Consumer Bankers Association and Mid-Size Bank Coalition of America reiterated today.  We estimate that, based on data released Friday by the Federal Reserve, the deposit insurance fund will return to its statutory minimum level in the first quarter of next year—well in advance of both the September 2028 statutory deadline for doing so and the FDIC’s projections of either 2027 or 2034.

What they’re saying: “Recent data demonstrates it is prudent to hold off on an assessment rate increase at this time. The problem is likely to fix itself early next year, so there is no need to raise the rate now, which would make credit more expensive for small business and consumers at the same time the U.S. is potentially entering into a recession.”
The latest: As recently as Friday, Federal Reserve data showed that seasonally adjusted non-large-time deposits at domestically chartered commercial banks continued to fall over the week ending Oct. 7—resulting in a $223 billion decline (12 percent annual rate) since August 24. Declines in insured deposit levels will continue to increase the ratio of deposit insurance fund assets to insured deposits. Moreover, the continued rise in interest rates will boost the FDIC’s portfolio return, departing further from the FDIC’s assumption that those returns would be zero forever, and further improving the ratio. 
Nevertheless, all indications are that the FDIC will finalize its proposed rate increase on Oct. 18.  The increase, set to take effect in the first quarter of next year, will reduce banks’ lending capacity right when bank credit supply will be needed to support growth and help steer the economy into a soft landing rather than a recession, or to cushion the blow of a recession should one occur.  

Bottom line: In light of the recent data, as well as the overall health and stability of the U.S. banking system, it would be imprudent for the FDIC to pursue this lending-reducing policy at this moment in time, and we continue to urge the FDIC not to do so.  


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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