The economic shock of COVID-19, and the resulting monetary and fiscal support, led to a substantial increase in deposits in our nation’s FDIC-insured banks. This shock caused the reserve ratio – the amount of reserves required in our Deposit Insurance Fund – to fall below the floor set by law.
The law requires that the FDIC develop a Deposit Insurance Fund restoration plan when the reserve ratio falls below 1.35%. By law, the ratio must be restored within eight years. The plan we are being updated on today would restore the Deposit Insurance Fund to the statutory minimum in 2028.
Given the significant uncertainty in the projections embedded in this plan – and the ultimate goal to have the Deposit Insurance Fund well exceed the 1.35% statutory minimum – we must continue to carefully analyze this plan to probe whether any amendments are necessary prior to the next semi-annual update to the Board of Directors.
More generally, the 2008 financial crisis taught us the values of countercyclical policy. Our regulatory and supervisory safeguards should be strengthened in stronger economic times, when risks tend to build in the financial system and when bank profits are robust.
I look forward to working with FDIC staff to evaluate whether this principle should be better reflected in our deposit insurance premium policy, so we are appropriately building up the fund in good times when banks can more easily afford it, rather than seeking sharp increases when economic conditions are less favorable.