FDIC: Proposal for Dividends if the Insurance Fund is Over-funded

ABA Contact:  Rob Strand, rstrand@aba.com, (202) 663-5350
Published: 72 Federal Register 53181
Comments Due: November 19, 2007

Summary:
The 2006FDIC reform law requires the agency to pay dividends to insured banks if the insurance fund rises above 1.35 percent of insured deposits. Above 1.35 percent, FDIC must dividend out half of the excess; above 1.50 percent, it must pay out the entire excess. On September 11, the FDIC Board proposed for comment means for allocating dividends in the event that the insurance fund becomes over-funded.

With premium assessments for all banks resuming this year, and banks using up their assessment credits, the insurance fund is likely to grow from the 1.21 percent level of June. ABA continues to encourage FDIC to lower the premium assessment schedule so that the fund will not grow toward a point where dividends would be paid. In case FDIC does not adjust the assessment schedule as needed, it is important for bankers to consider the proposal and let FDIC know how they feel.

The proposal lays out two alternative methods for allocating dividends. The "fund balance" method is similar to how a mutual fund works: a bank's share of dividends would be based on a share of the fund balance. This share would consider each bank's portion of the 1996 assessment base as a proxy for assessments paid before 1997, and would take account of premiums paid going forward. Under the "payments" method, each bank's share of dividends would depend on its payments to FDIC over some period of time, say 15 or 20 years. Contributions made before 1996 (using the 1996 assessment base proxy) would be included initially but would eventually fall out of range.

 Notice of Proposed Rulemaking, May 18, 2006
 ABA Comment Letter, Aug. 14, 2006
 Temporary Rule, Oct. 18, 2006
 Advance Notice of Proposed Rulemaking, Sept. 18, 2007
 ABA Comment Letter, Nov. 19, 2007