Changes in FDIC Insurance Assessments
By Dennis Lesnau
Community Bank Advisor, 2007 Winter
In February 2006, the Federal Deposit Insurance Reform Act of 2005 was signed into law. Among other provisions, the Act imposes FDIC assessments for the insurance fund and also provides for a one-time assessment credit for many banks.
The Act consolidates the number of assessment risk categories from nine to four:
- Risk Category I contains all well-capitalized institutions in Supervisory Group A (generally those with CAMELS composite ratings of 1 or 2).
- Risk Category II contains all institutions in Supervisory Groups A and B (generally those with CAMELS composite ratings of 1, 2, or 3), except those in Risk Category I and undercapitalized institutions.
- Risk Categories III and IV contain undercapitalized institutions and institutions in Supervisory Group C (generally those with CAMELS composite ratings of 4 or 5) that are not undercapitalized.
For all institutions in Risk Category I, CAMELS component ratings (based on a weighted average) will be considered in determining assessment rates. Capital adequacy and management will be weighted at 25 percent each; asset quality will be weighted at 20 percent; and earnings, liquidity, and sensitivity will be weighted at 10 percent each.
For small institutions (those with less than $10 billion in total assets), certain financial measures will also be considered to differentiate risk, including:
- The Tier 1 Leverage Ratio
- Loans past due 30–89 days/gross assets
- Nonperforming assets/gross assets
- Net loan charge-offs/gross assets
- Net income before taxes/risk-weighted assets
The Act establishes the following rates (subject to periodic adjustments):
In addition to requiring assessments, the Act also resulted in a one-time assessment credit pool of approximately $4.7 billion to be shared among eligible institutions. The credits are available to offset assessments beginning in 2007. Information on the credits and the assessments are available on the FDIC website at http://www.fdic.gov/deposit/insurance/index.html.
In considering your budgets for 2007 and beyond, please remember the impact of the FDIC insurance assessment and the impact of the one-time credit.
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