WASHINGTON–It isn’t just NCUA and credit unions wrestling with the equity ratio of a deposit insurance fund.
The FDIC said it continues to progress with a plan to return its insurance fund to a reserve ratio of 1.35% of total savings insured. The FDIC board indicated it believes depositor behavior will return to normal as the economy continues to recover and government stimulus checks aren’t leading to an influx of deposits.
The FDIC board first adopted a plan to restore the deposit insurance fund (DIF) in September of 2020. At its most recent meeting this week the board was given an update on the progress being made.
The FDIC said no assessment is planned for banks insured by the fund, in which reserves are currently at more than $119 billion. But much like the equity ratio of the National Credit Union Share Insurance Fund, which has also sunk as deposits have flooded in, the FDIC fund’s ratio is now at 1.25%, which is 10 points below the rate mandated by the restoration plan. The FDIC plan calls for a 1.35% ratio within eight years.
“As economic conditions improve, surge insured deposits associated with the pandemic may recede as the precautionary behavior exhibited by depositors subsides and individuals and businesses redirect deposits toward consumption and higher-yielding investments,” the FDIC staff said in a memo. “The economic outlook has strengthened in recent months and appears more favorable than last September, and the banking system continues to appear better positioned to withstand losses when compared to prior periods of stress.”
Additional Risks
The FDIC memo also said slower than expected economic growth, market volatility or “additional fiscal or monetary stimulus” could result in increased deposit growth at banks – or losses to the DIF.
The same memo also states there is additional risk should the quality of bank assets quickly deteriorate or capital markets “become severely constrained” – which could both affect income.
In a statement, FDIC Chairman Jelena McWilliams said that “as both deposit trends and potential losses are difficult to predict, staff will continue to monitor these and other factors” and their impact on the DIF.