Banks Face Bigger Deposit Insurance Payments From FDIC

The Federal Deposit Insurance Corp., the U.S. agency that protects savings accounts, is requiring lenders to increase how much they contribute to a fund that protects consumers from bank failures despite fierce industry objections to the move.

American banks will have to start paying bigger deposit insurance assessment rates starting in the first quarter of 2023 under the rule change approved on Tuesday. The FDIC said the two-basis-point increase was meant to boost the industry’s overall ratio of protection to insured deposits, a measure that fell as Americans saved more during the COVID-19 pandemic.

Although the FDIC says the change is needed to better protect consumers, banks say the plan doesn’t account for how inflation and rising interest rates will organically reduce savings and deposits. Account balances ballooned as American households received government stimulus checks and changed spending patterns since 2020.

“Overall, the banking industry continues to report strong earnings and is well positioned to absorb this modest increase in assessment rates,” FDIC acting Chairman Martin Gruenberg said during a meeting. The change “should not impact lending or credit availability in any meaningful way,” he added.

The regulator is getting a jump on the issue well ahead of a 2028 mandated deadline, said Tim Ghriskey, a senior portfolio strategist at Ingalls & Snyder in New York. Ghriskey said banks currently being flush with cash makes it possible for the FDIC to try to increase the reserve ratio.

The Bank Policy Institute, American Bankers Association and Consumer Bankers Association said in a letter this week that recent data show there has already been a decline in the rate of insured deposits, contradicting the FDIC assumption that deposits would remain elevated. They say the changes, which were proposed in June, are unnecessary and could harm the economy because they’ll ultimately discourage lending.

“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 banking groups said. Banks have complained about increases before.

The FDIC says it’s required to boost the ratio of protection to insured deposits, a measure known as the Deposit Insurance Fund reserve ratio, to 1.35%. The regulator has said the metric stood at 1.23% in March. The FDIC has said its long-term goal is 2%.

Katanga Johnson reports for Bloomberg News.

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