Alert October 14, 2008

FDIC Increases Deposit Insurance Premiums

As reported in the October 7, 2008 Alert, effective October 3, 2008, the FDIC temporarily increased the limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor.  The increase in coverage terminates on December 31, 2009.

On October 7, 2008, the FDIC Board of Directors issued a notice of proposed rulemaking (the “NPR”) by which the FDIC proposes to increase bank deposit premium rates significantly to recapitalize the FDIC’s Deposit Insurance Fund (the “DIF”) and to make the premium rates more sensitive to the risks presented by the applicable banking institution to the DIF.  At the same time, the NPR would change the factors used to calculate deposit premiums.  Factors that would raise a bank’s deposit premium would include excessive use of brokered deposits and excessive use of secured liabilities.

Currently banks pay from 5 basis points to 43 basis points for deposit insurance.  Under the NPR, assessment rate categories would initially be, uniformly increased by 7 basis points (annualized) for the quarter beginning January 1, 2009.  Premiums for “well-capitalized” CAMELS 1- and 2- rated banks would increase from a range of 5-7 basis points to a range of 12-14 basis points.  For subsequent quarters, adjustments would be made to increase the deposit premium burden borne by banks that, in the view of the FDIC, pose the greatest risk to the DIF.  The FDIC also decided to maintain the DIF’s Designated Reserve Ratio at 1.25 percent.  The FDIC also stated that the changes proposed in the NPR are intended to ensure that the [Designated Reserve Ratio] returns to 1.15 percent by the end of 2013.”