FDIC outlines bank resolution overhaul and assessment cuts

Traders Union
All News
Regulators News
FDIC bank resolution overhaul

Highlights

FDIC Chairman Travis Hill outlined a shift to more tailored resolution planning, narrowing the IDI Rule focus for large, complex banks and proposing readiness incentives via deposit insurance assessments.
The Deposit Insurance Fund reserve ratio has risen to 1.43%—its highest since the 1960s—following a two-basis-point assessment increase in 2022 and efforts to recover from 2023 bank failures.
FDIC plans significant changes including raising the $10 billion large bank scorecard threshold, cutting small-bank assessments by two basis points, and enabling further reductions for large banks meeting resolution readiness criteria.

Resolution planning changes take shape

As outlined in remarks published by the Federal Deposit Insurance Corporation, Chairman Travis Hill says the agency is reassessing its long-standing approach to resolving failed banks, especially for larger insured depository institutions where complexity and limited lead time can hinder an orderly sale.

Hill says traditional advance planning is often unnecessary for most small bank failures because those institutions tend to have simpler balance sheets, fewer business lines and a longer period before failure that gives the FDIC time to gather information and market the bank. He argues that the need for ex ante planning is greater when institutions are larger, more operationally complex and more vulnerable to rapid liquidity-driven stress.

Under the approach now being developed, the existing IDI Rule would be narrowed to emphasize key operational information directly tied to the FDIC's ability to execute a resolution. The agency is also considering a new resolution readiness adjustment in its deposit insurance assessment framework for larger banks, allowing scorecard banks to qualify for a lower quarterly assessment if they can quickly populate a virtual data room or give the FDIC temporary access to internal systems or third-party service providers.

Hill says that kind of advance access should lower the cost of a bank failure by helping the FDIC build technology infrastructure and obtain data faster if a bank collapses. He also says the agency is continuing work with the Federal Financing Bank on a permanent facility to quickly monetize receivership assets and is exploring reforms to the Title I resolution planning process.

Assessment framework shifts toward lower rates

Beyond resolution readiness, the FDIC is weighing broader changes to assessments as it balances the need to grow the Deposit Insurance Fund against the cost that fees impose on lending and investment in the wider economy.

Hill says the fund fell into negative territory after the 2008 financial crisis and later rose above the statutory minimum reserve ratio in the third quarter of 2018, before dropping below that floor again in 2020 as pandemic-era stimulus expanded the reserve ratio denominator. After a two-basis-point industrywide assessment increase in 2022 and losses tied to the 2023 bank failures, the reserve ratio moved back above 1.35% last year and now stands at 1.43%, its highest level since the 1960s.

The FDIC now expects to propose raising and indexing the threshold for banks subject to the large bank scorecard, which is currently set at $10 billion, so it better matches institutional scale, complexity and risk. It also plans to reduce assessments, with small-bank scorecard institutions expected to receive a full two-basis-point cut, while large-bank scorecard institutions would get a smaller broad reduction but could reach a comparable overall decrease by opting into the resolution readiness adjustment.

Hill says the agency still intends to continue building the Deposit Insurance Fund toward its long-term 2% target, at a pace resembling the trajectory in place before 2022. He adds that a separate modernization of the large bank scorecard, unchanged in material respects since 2011, is also under way and would likely be proposed later than the other measures.

In our earlier article on Bank of America (BAC), we highlighted the stock’s bullish technical setup, with price holding above key weekly moving averages and buyer dominance still evident. We also noted that optimism was supported by plans for a cross-border real-time payments launch and expectations of improving net interest income, while overbought indicators pointed to a higher chance of near-term consolidation rather than a straight breakout.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.