[Federal Register Volume 87, Number 126 (Friday, July 1, 2022)]
[Notices]
[Pages 39518-39520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13582]


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FEDERAL DEPOSIT INSURANCE CORPORATION


Federal Deposit Insurance Corporation Amended Restoration Plan

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice.

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    The Federal Deposit Insurance Act (FDI Act) requires that the 
FDIC's Board

[[Page 39519]]

of Directors (Board) adopt a restoration plan when the Deposit 
Insurance Fund (DIF or fund) reserve ratio falls below the minimum of 
1.35 percent or is expected to within 6 months.\1\ Extraordinary growth 
in insured deposits during the first and second quarters of 2020 caused 
the DIF to decline below the statutory minimum of 1.35 percent as of 
June 30, 2020. On September 15, 2020, the FDIC established a 
Restoration Plan (Plan) to restore the DIF to at least 1.35 percent by 
September 30, 2028, maintaining the assessment rate schedule in place 
at the time.\2\
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    \1\ 12 U.S.C. 1817(b)(3)(B) and (E).
    \2\ See 85 FR 59306 (Sept. 21, 2020). Under the FDI Act, a 
restoration plan must restore the reserve ratio to at least 1.35 
percent within 8 years of establishing the plan, absent 
extraordinary circumstances. 12 U.S.C. 1817(b)(3)(E)(ii).
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    Under the Plan, the FDIC is monitoring deposit balance trends, 
potential losses, and other factors that affect the reserve ratio. 
While insured deposit growth rates remained elevated through the first 
quarter of 2021, such growth decelerated for the remaining quarters of 
2021 through the first quarter of 2022 and was slightly above the 
historical average annual growth rate. Those insured deposits that 
resulted from extraordinary growth in the first half of 2020 and the 
first quarter of 2021 as the result of actions taken by monetary and 
fiscal authorities, and by individuals, businesses, and financial 
market participants in response to the Coronavirus Disease (COVID-19) 
pandemic do not appear to have receded as of the first quarter of 2022.
    Unrealized losses on available-for-sale securities in the DIF 
portfolio contributed to a relatively flat DIF balance in the first 
quarter of 2022. As of March 31, 2022, the industry weighted average 
assessment rate nearly matched the pre-pandemic average, and has been 
consistently below the level projected when the Board originally 
adopted the Plan. Consequently, growth in insured deposits outpaced 
growth in the DIF, resulting in a decline in the reserve ratio of 4 
basis points to 1.23 percent as of March 31, 2022.
    The FDIC updated its analysis and projections for the fund balance 
and reserve ratio to estimate how changes in insured deposit growth and 
assessment rates affect when the reserve ratio would reach the 
statutory minimum of 1.35 percent. Based on this analysis, the FDIC 
projects that, absent an increase in assessment rates, the reserve 
ratio is at risk of not reaching the statutory minimum of 1.35 percent 
by the statutory deadline of September 30, 2028.
    Assuming relatively favorable conditions, in which some of the 
excess insured deposits resulting from the pandemic are retained and 
the average assessment rate is higher than experienced over the last 
year, the FDIC projects that the reserve ratio would reach the 
statutory minimum of 1.35 percent close to the statutory deadline. 
Similarly, under a scenario in which no excess deposits are retained 
and the average assessment rate is lower, but the FDIC increases 
assessments by 1 basis point, the FDIC projects that the reserve ratio 
would reach the statutory minimum of 1.35 percent close to the 
statutory deadline. In both of these scenarios, any number of uncertain 
factors--including unexpected losses, accelerated insured deposit 
growth, or lower weighted average assessment rates due to improving 
risk profiles of institutions--could materialize and could easily 
prevent the reserve ratio from reaching the minimum by the statutory 
deadline. As a result, these scenarios carry higher risk that the FDIC 
would have to increase assessment rates in the face of a future 
downturn or industry stress.
    The FDIC also projected the effects of a 2 basis point increase on 
scenarios that applied two sets of reasonable assumptions for insured 
deposit growth and average assessment rates. An increase of 2 basis 
points under both scenarios would result in the reserve ratio reaching 
the minimum of 1.35 percent approximately two years from now, building 
in a buffer in the event of uncertainties, as described above, that 
could stall or counter growth in the reserve ratio. Furthermore, 
reaching the statutory minimum reserve ratio of 1.35 percent ahead of 
the statutory deadline would mean that the FDIC would exit its 
Restoration Plan. If the reserve ratio subsequently declined below the 
statutory minimum, the FDIC would establish a new restoration plan and 
would have an additional eight years to restore the reserve ratio.
    The banking industry remained resilient moving into the second half 
of 2022 despite the extraordinary challenges of the pandemic and recent 
economic uncertainties.\3\ Strong liquidity and capital levels should 
help to mitigate any potential unexpected credit stress across loan 
portfolios. Given the relative strength in the condition of the banking 
industry over the past several quarters, increasing assessment rates 
beginning in 2023 would reduce the likelihood that the FDIC would need 
to later impose a pro-cyclical increase in assessment rates during a 
potential future period of banking industry stress.
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    \3\ As used in this Notice, the term ``bank'' is synonymous with 
the term ``insured depository institution'' as it is used in section 
3(c)(2) of the FDI Act, 12 U.S.C. 1813(c)(2).
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    On balance, the FDIC views a uniform increase in initial base 
deposit insurance assessment rates of 2 basis points as the most 
appropriate and most straightforward manner in which to achieve the 
objective of increasing the likelihood that the reserve ratio would 
reach the statutory minimum of 1.35 percent by the statutory deadline 
of September 30, 2028. Therefore, the FDIC is amending the Plan to 
incorporate a uniform increase in initial base deposit insurance 
assessment rates of 2 basis points, as described below. The FDIC is 
also concurrently publishing a notice of proposed rulemaking to propose 
adoption of these higher assessment rates, beginning with the first 
quarterly assessment period of 2023.

The Amended Restoration Plan

    Therefore, the FDIC amends the Restoration Plan adopted on 
September 15, 2020, as follows:
    1. FDIC will increase initial base deposit insurance assessment 
rates uniformly by 2 basis points for all insured depository 
institutions (IDIs).
    2. The FDIC will have the accompanying notice of proposed 
rulemaking proposing to increase initial base deposit insurance 
assessment rates uniformly by 2 basis points, effective the first 
quarterly assessment period of 2023, published in the Federal Register 
as soon as possible.
    3. The FDIC projects that the rates proposed in the notice of 
proposed rulemaking would increase the likelihood that the reserve 
ratio would be restored to 1.35 percent by September 30, 2028.
    4. The FDIC will continue to monitor deposit balance trends, 
potential losses, and other factors that affect the reserve ratio.
    5. At least semiannually, the FDIC will update its analysis and 
projections for the fund balance and reserve ratio and, if necessary, 
recommend any modifications to the Amended Restoration Plan.
    6. This Amended Restoration Plan shall be implemented immediately.
    To meet the statutory requirement, the reserve ratio must be 
restored to at least 1.35 percent no later than September 30, 2028, the 
statutory deadline by which the reserve ratio must be restored to the 
statutory minimum of 1.35 percent.\4\
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    \4\ The reserve ratio is based on total estimated insured 
deposits at the end of a given quarter. The FDIC will use data as of 
September 30, 2028, the first quarter-end date for which the reserve 
ratio will be known after September 15, 2028, the end date of the 8-
year period.


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    Federal Deposit Insurance Corporation.

    By order of the Board of Directors.
    Dated at Washington, DC, on June 21, 2022.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2022-13582 Filed 6-30-22; 8:45 am]
BILLING CODE 6714-01-P