The Evolution of FDIC Deposit Insurance Assessments Donna Saulnier - PowerPoint PPT Presentation

The Evolution of FDIC Deposit Insurance Assessments Donna Saulnier and Ashley Mihalik

2 Learning Objectives  The evolution of FDIC assessments  The history of invoicing & collection  Risk mitigation strategies

3 Original Assessment System  Fixed rate – all banks paid a uniform rate  Initial nominal assessment rate set = 8.33 bps * domestic deposits  Starting in 1950, included rebates  Role of fund management

4 Risk-Based Assessments 1993 First risk- 2006 Revisions to 2008 Changes based assessment risk-based pricing during the system Financial Crisis • Separate pricing for large and small • Based on capital • Adjustments for banks levels and liabilities that could supervisory groups affect potential • Financial ratios losses to the DIF predict probability of downgrade

5 Current Assessment System 2010 Dodd-Frank 2011 Large Bank 2016 Small Bank Act Pricing Changes Pricing Changes • Changes to fund • Scorecards for • Based on management large banks and experience during highly complex 2 banking crises • Assessment base banks • Financial ratios • Financial ratios predict probability predict risk ranking of failure

6 Assessment Rate Schedule Established Small Banks Large & Highly CAMELS Composite Rating Complex Institutions 1 or 2 3 4 or 5 Initial Base Assessment Rate 3 to 16 6 to 30 16 to 30 3 to 30 (IBAR) Unsecured Debt Adjustment a -5 to 0 -5 to 0 -5 to 0 -5 to 0 Brokered Deposit Adjustment N/A N/A N/A 0 to 10 Total Base Assessment Rate 1.5 to 16 3 to 30 11 to 30 1.5 to 40 Note: Assessment base equals average consolidated total assets minus average tangible equity, with additional reductions for custodial banks and banker’s banks. a The unsecured debt adjustment is limited to the lesser of 5 basis points or 50 percent of the IBAR; thus, for example, the maximum unsecured debt adjustment for an institution with an IBAR of 5 basis points is 2.5 basis points. The rate schedule shown does not include the depository institution debt adjustment, which increases assessments by 50 basis points for each dollar of long-term unsecured debt held by a bank that was issued by another insured institution, to the extent that the debt exceeds 3 percent of Tier 1 capital.

7 History of Invoicing & Collection Original Paper-Based Process

8 Paper-Based Process  Paper forms completed semiannually by banker  Similar to IRS tax forms  Mailed to FDIC lockbox along with a paper check  Required reconciling when checks were posted to the wrong bank  > 40% error rate  Semiannual error verification process

9 History of Invoicing & Collection Current Electronic Bill Presentment & Collection

10 Electronic Bill Presentment & Collection  Invoices prepared by FDIC quarterly using data reported by banks  Banks required to review the invoice, to notify FDIC of errors, and to ensure funds are available for payment from a designated account  Assessment premiums are collected quarterly via ACH direct debit

11 Risk Mitigation  Source system reconcilements  Dual-control processes  Quarterly internal control self-assessments

12 Risk Mitigation  Annual audits by Government Accountability Office (GAO)  Structured Compliance Review Programs  Assessment Base Reviews  High-Risk Asset Reviews

13 For more information… https://www.fdic.gov/deposit/insurance/assessments/

14 Contact Information: Donna Saulnier – dsaulnier@fdic.gov Ashley Mihalik – amihalik@fdic.gov