FDIC Proposal Lowers Insurance Costs for Banks Under $30 Billion

Proposed changes to federal deposit insurance assessments could translate to significant savings for community banks.

A recent analysis by the Federal Reserve Bank of Kansas City looks at those changes, proposed by the Federal Deposit Insurance Corp. (FDIC).

The Fed estimates established community banking organizations (CBOs) are now paying around $1.6 billion each year in FDIC assessments. The central bank defines CBOs as commercial banks that have less than $10 billion in assets.

Under the proposal, which would lower initial base assessment rates by 2 basis points, the $1.6 billion figure would drop to around $1.1 billion, freeing about $500 million each year. The proposal would also increase the asset threshold for treatment as a small institution from $10 billion to $30 billion.

“A reduction in FDIC assessment costs would lower operating expenses for CBOs, freeing up capital that could be allocated toward technology investments, expanded lending capacity, or other strategic priorities,” the analysis said.

In other community banking news, PYMNTS wrote last week about plans by 39 state banker associations to launch the BankChain Alliance, an industry-owned, industry-designed and industry-governed blockchain network capable of supporting smart payments, tokenized deposits, stablecoins and automated settlement.

That report said the most important terms in the group’s announcement was not “blockchain,” but “owned.”

“After all, strip away the blockchain vocabulary and the strategic calculation by these community bankers becomes clearer: America’s smaller and regional banks are confronting an infrastructure problem that gets more difficult as money becomes more programmable,” PYMNTS wrote.

“Large institutions can build. FinTechs can specialize. Networks can aggregate. Smaller banks need another answer. BankChain has proposed one, and it is to pool their scale.”

Community banks, the report added, have traditionally “competed at the customer layer while sharing expensive infrastructure underneath it,” whether that means card networks, correspondent banking, core processors, ATM networks or shared technology providers.

However, artificial intelligence, tokenized deposits, stablecoins and other financial services innovations are testing that digital divide at scale. Larger banks can spend hundreds of millions of dollars on their tech initiatives, while smaller lenders cannot do the same on their own.

“That makes BankChain less a cryptocurrency experiment than a test of whether cooperative infrastructure, which is one of banking’s oldest competitive tools, can be rebuilt for programmable money,” the report added.