WASHINGTON –Unlike the credit union share insurance fund, which is not in need of replenishing, the Federal Deposit Insurance Corporation has released its second semiannual update of 2023 on the Restoration Plan for its Deposit Insurance Fund (DIF).
The equity ratio of the NCUSIF as of June 30 was 1.27%, a decrease of three basis points from year-end 2022, but above the 1.20% ratio that is the point at which the NCUA board would have to act to replenish the fund.
The Federal Deposit Insurance Act (FDI Act) requires that the FDIC Board adopt a restoration plan when the DIF’s reserve ratio—the ratio of the fund balance relative to insured deposits—falls below 1.35%.
As of June 30, 2023, the DIF balance stood at $117.0 billion. According to the agency, increased loss provisions, including for the significant bank failures that occurred in March and May, coupled with strong insured deposit growth, resulted in a decline in the reserve ratio from 1.25% as of Dec. 31, 2022, to 1.10% as of June 30, 2023.
“Despite this decline, the FDIC projects that the reserve ratio is likely to reach the statutory minimum of 1.35% by the statutory deadline of September 30, 2028,” the agency said in a statement.
The FDIC noted that on Sept. 15, 2020, it established the Restoration Plan to restore the DIF reserve ratio to at least 1.35% by the statutory deadline, “after extraordinary deposit growth during the first half of 2020 caused the DIF’s reserve ratio to decline below the statutory minimum of 1.35%.”
‘At Risk of Not Reaching Minimum’
“The Plan maintained the assessment rate schedules in place at the time,” the FDIC stated. “On June 21, 2022, based on projections indicating that the reserve ratio was at risk of not reaching the required minimum by the statutory deadline, the FDIC Board amended the Restoration Plan (Amended Restoration Plan). In conjunction with the Amended Restoration Plan, the FDIC Board increased deposit insurance assessment rates by 2 basis points for all insured depository institutions, effective in the first quarterly assessment period of 2023.”
According to the bank regulator, the increase in assessment rate schedules that became effective on Jan. 1, 2023, resulted in additional assessment revenue that slightly offset the decline in the DIF in the first half of 2023.
‘Potential Need for Further Action’
“Had this rate increase not already been in effect, the board might have been faced with a different projected path for the reserve ratio, and potential need for further current action, given the period of stress and the bank failures earlier this year,” FDIC Chairman Martin J. Gruenberg said in a statement.
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