Small business owners can breathe a sigh of relief as the Federal Deposit Insurance Corporation (FDIC) recently confirmed that the projected timeline for the restoration of the Deposit Insurance Fund (DIF) will not be significantly impacted by the recent failure of two large banks. The announcement came during the FDIC’s semiannual update on the Restoration Plan for the agency’s DIF.
FDIC Chairman Martin J. Gruenberg assured the financial community that despite the heightened uncertainties in the banking industry, the two recent bank failures would not materially affect the projected timeline for reaching the statutory minimum reserve ratio of 1.35 percent. He stated, “The bottom line to today’s update is that even with increased uncertainty in the banking industry and the recent failure of two large banks, 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 percent.”
In what comes as good news for small businesses relying heavily on the stability of the banking sector, the reserve ratio is expected to reach the minimum ahead of the statutory deadline of September 30, 2028. The FDIC thus sees no need to amend the Restoration Plan at this juncture.
The recent failures of Silicon Valley Bank and Signature Bank resulted in losses of approximately $22.5 billion. The majority of these losses, $19.2 billion, will be mitigated by the protection of uninsured depositors under the Systemic Risk Exception. The remaining $3.3 billion in losses will directly impact the DIF balance, but it is not expected to significantly alter the projected timeline for reaching the statutory minimum reserve ratio.
For those unfamiliar with the procedures, the Federal Deposit Insurance Act (FDI Act) mandates that the FDIC’s Board of Directors adopt a restoration plan when the Fund’s reserves fall below 1.35 percent of all insured deposits held in FDIC-insured financial institutions. This situation arose due to extraordinary deposit growth during the first and second quarters of 2020, which caused the Fund’s reserve ratio to decline below the statutory minimum. Subsequently, in September 2020, the FDIC established a plan to restore the Fund’s reserves to at least 1.35 percent by September 30, 2028.
The FDIC has also been proactive in making adjustments to ensure the financial health of the DIF. In June 2022, the FDIC Board of Directors approved an amendment to the agency’s Restoration Plan, proposing to increase deposit insurance assessment rates by two basis points for all insured depository institutions. This increase was adopted in October 2022, and the new rates came into effect in the first quarterly assessment period of 2023.
This latest update from the FDIC is a significant reassurance to small businesses across the nation. Despite the turbulence in the banking sector, the FDIC’s proactive and strategic measures are expected to maintain the stability of the DIF, ensuring the continuous protection of depositors and contributing to the overall health of the economy.
This article, “FDIC Optimistic About Timely Recovery of Deposit Insurance Fund Despite Bank Failures” was first published on Small Business Trends
FDIC recently confirmed that the projected timeline for the restoration of the Deposit Insurance Fund (DIF) will not be significantly impacted by the recent failure of two large banks.Read MoreSmall Business NewsSmall Business Trends