Plans to bring the FDIC’s Deposit Insurance Fund (DIF) back to its minimum reserve ratio of 1.35% have not been blown off course by the $22.5bn cost of covering the deposits at SVB and Signature Bank, FDIC chair Martin Gruenberg said at the organization’s board meeting earlier this week. His comments come as US lawmakers tee up a series of legislative measures on deposit insurance and bank regulation in the wake of these recent bank failures, which appeared to potentially threaten another banking crisis.

Attention on the DIF has increased since the decision to backstop all deposits of the failed banks, including uninsured funds. The FDIC has said $19.2bn of the losses are down to covering uninsured deposits, while the remaining $3.2bn cover insured deposits.

The regulator has said it plans to recover the $19.2bn through a special assessment, which won’t directly affect the DIF balance, with a rulemaking notice-and-comment period planned for May. The cost of covering the remaining $3.2bn will, however, directly affect the balance.

Projected timeline

Nonetheless, Gruenberg told the board, “staff project that the losses from the two failures are not expected to have a material effect on the projected timeline for reaching the statutory minimum reserve ratio of 1.35%”.

Legally, the FDIC must ensure it holds at least $1.35 for every $100 of insured deposits, and banks pay risk-weighted insurance premiums into the fund every quarter. When the ratio fell during the pandemic, the FDIC approved a plan to refill the fund by 2028.

The special assessment is key to the FDIC hitting its target, and the lack of detail so far is increasing nervousness among smaller community banks, who are lobbying to be spared from having to contribute. They argue any fee should be levied on the largest banks, which benefited from the backstop decision.

Assessment rate

All FDIC-insured banks are already paying an assessment rate that was raised by two basis points in January in order to keep the rebalancing plan on target.

There’s fierce debate on Capitol Hill about whether or not to raise deposit insurance, with senior Democrat Elizabeth Warren leading calls to raise the limit, while Republicans dig in to block any universal guarantee. And there is also controversy around regulatory proposals regarding capital, liquidity and stress-testing requirements.

A number of bills have already been introduced in Congress since the crisis blew up, including;

• Secure Variable Banking Act – aiming to return the asset threshold for tighter capital and liquidity requirements to $50bn from the current $250bn;
• Critical Bank Review Act – which would require the Treasury to designate certain financial institutions as “sectorally critical”;
• Financial Stability Mandate Act – which would require the Fed to consider the nation’s overall financial stability when setting intrest rates;
• Emergency Liquidity Act – requiring the establishment of a permanent emergency lending program;
• Federal Reserve Independence Act – aiming to block bank executives from serving on regional Fed boards that regulate the banks they run, and also preventing Fed employees and board members from owning stock in institutions the central bank regulates;
• Failed Bank Executives Clawback Act – aiming to make executives of failed banks responsible for the costs of failures.

With Republicans seemingly determined to block most if not all the measures, observers are predicting that it is unlikely many of these proposed changes will actually reach the statute book. This lack of change might only lead to increased pressure on the regulatory bodies themselves to take action on regional or systemically important banks.