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Joint Trades Comment Letter on FDIC DIF Assessment Rates
To whom it may concern,
The undersigned Associations appreciate the opportunity to comment on the Federal Deposit Insurance Corporation’s notice of proposed rulemaking to increase initial base deposit insurance assessment rates by 2 basis points until the Deposit Insurance Fund (DIF) achieves the FDIC’s long-term goal of achieving a Designated Reserve Ratio (DRR) of 2 percent of insured deposits. Although we support the continued strength and resiliency of the DIF, such an aggressive assessment rate increase is unwarranted.
The FDIC asserts that this increase is necessary to meet the statutory requirement of the Federal Deposit Insurance Act (FDIA) to return the DIF reserve ratio to 1.35 percent within eight years of falling below that mark and adopting a restoration plan, in this case, by September 15, 2028. However, the analysis underlying this assertion includes outdated assumptions, particularly with respect to deposit levels and earnings on the DIF’s investment portfolio, which is closely tied to interest rates. Furthermore, although the 1.35 percent statutory mandate is the ostensible justification given for the assessment rate increase, the proposal would not limit the increase to achieving this objective; rather, it provides that the increase would remain in place at least until the DIF reserve ratio reaches 2 percent. This eleven-year-old goal is not mandated in the FDIA or any other statute and there is no statutory or regulatory provision that requires the FDIC to achieve it within any timeframe. Furthermore, like the FDIC’s reserve ratio projection, the 2 percent DRR goal is based on demonstrably outdated analysis.
The proposal also ignores the likely detriments of the increase to the banking industry, the people and businesses who rely on it for credit, and the broader economy. Therefore, the FDIC should defer to the legislative intent, as demonstrated by the language, structure and legislative history of the FDIA’s deposit assessment provisions, to avoid a dramatic increase in assessment rates. At least for the time being, the FDIC should maintain assessment rates at the current levels. The FDIC can revisit assessment rate levels at any time; if conditions later evolve to justify a rate increase, it can act at that time.
Part I of this letter shows that the FDIC based its DIF reserve ratio projections on assumptions that more recent data proves to be unrealistic and, if updated, demonstrate that there is no evidence to indicate that the FDIC will not comply with its statutory mandate to return the DIF reserve ratio to 1.35 percent by September 15, 2028. Part II examines the analytic and statutory basis for the DRR target of 2 percent—an aspirational goal established by the FDIC over a decade ago—and shows that this level no longer aligns with the condition of the banking industry or the legislative intent for the FDIA, and therefore does not justify an assessment rate increase at this time. Part III demonstrates that the magnitude of the increase that the FDIC is proposing is inconsistent with the legislative intent of assessment-rate related provisions of the FDIA, unnecessarily burdensome to banks, and will harm consumers and businesses, particularly small businesses without access to capital markets.
To read full comment letter, click here.