Trade groups oppose proposed increase in deposit insurance premiums

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The American Bankers Association and five trade associations spoke out against a proposed two basis point increase in deposit insurance assessment rates in comments submitted to the FDIC today, saying that “a such an aggressive increase in valuation rates is unwarranted”.

The FDIC signaled in June its intention to raise rates beginning in the first quarterly assessment period of 2023. The proposed increase – which would remain in effect until the Insurance Fund reserve ratio – deposits meets the FDIC’s 2% long-term goal – would equate to a 54% increase in the current average assessment rate. The agency previously approved a DIF restoration plan to restore the reserve rate to the legal minimum of 1.35% in 2028, but a sustained increase in insured deposits due to the pandemic and large latent losses in its portfolio of securities caused the reserve ratio to fall to 1.23. % earlier this year.

In their letter, the associations said the analysis underlying the proposed increase does not take into account recent changes in deposit levels or interest rates. They also said that the factors that caused the reserve ratio to fall and keep it below its legal minimum, and which the FDIC says will continue, will soon disappear. The groups added that the rate hike goes against what Congress intended when it passed the legislative framework to raise rates, because lawmakers wanted to avoid the steep increases the agency is now proposing.

“Forgoing a pro-cyclical increase, particularly when the DIF reserve ratio is expected to return to its statutory minimum without the need to increase valuations, will free up bank resources and enable banks to better maintain lending support economic activity in the event of an economic downturn, thereby supporting the economy as a whole and, ultimately, the public,” the groups said.

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