FDIC Fund Increase Sparks New Fight Over Deposit Insurance Limits

The Federal Deposit Insurance Corporation’s Deposit Insurance Fund (DIF) reserve ratio increased four basis points to reach 1.40% in the third quarter.

The fund’s balance increased by $4.8 billion to reach $150.1 billion, the FDIC said in a Monday (Nov. 24) press release outlining findings from its Quarterly Banking Profile for the third quarter.

“Assessment revenue continued to be the primary driver of the increase, adding $3.3 billion to the DIF balance,” the FDIC said in a statement issued on Monday. “Interest earned on investment securities, negative provisions for insurance losses, and unrealized gains on securities also contributed a combined $2.1 billion to the fund, partially offset by operating expenses of $570 million.”

The increase in the reserve ratio was driven by slow growth in insured deposits and the increase in the fund’s balance, the FDIC said in the statement. The regulator said insured deposits grew by 0.1% during the third quarter.

The Deposit Insurance Fund insures the deposits and protects the depositors of insured banks, and resolves failed banks, according to the FDIC website. It is funded by assessments on FDIC-insured institutions and interest earned on funds invested in U.S. government obligations.

Bloomberg reported Monday that the FDIC has been rebuilding the Deposit Insurance Fund since 2020, when the reserve ratio dropped below the level required by law amid a surge in deposits.

It was reported Oct. 29 that lawmakers from both parties want big banks to up their insured deposit limits from the current $250,000.

Midsized banks argued that higher caps would prevent bank runs like the ones seen at Silicon Valley Bank and Signature Bank in March 2023.

Their efforts have helped lead to a Senate bill that proposes increasing the insurance limit up to $10 million on certain accounts, such as those normally used by businesses for payroll and other operational expenses.

Bank CEOs told lawmakers at a Senate Committee hearing held in September that deposit insurance reform is desperately needed in the wake of the Silicon Valley Bank collapse in 2023.