FDIC's Bair: 2% Insurance Reserve Ratio Best For Potential Crisis
WASHINGTON -(Dow Jones)- Federal Deposit Insurance Corp. Chairman Sheila Bair Wednesday said the agency's Deposit Insurance Fund should have a minimum reserve ratio of 2% ahead of a possible banking crisis, significantly above the 1.35% minimum specified in the Dodd-Frank Act approved by Congress this summer.
The minimum designated reserve ratio was 1.15% prior to Dodd-Frank.
But an FDIC analysis indicated that the fund's minimum reserve ratio--which measures the fund's balance against estimated insured deposits--"should be about 2% in advance of a banking crisis in order to avoid high deposit insurance assessment rates when insured depository institutions are strained by a crisis and least able to pay," Bair said in remarks prepared for a Senate committee hearing scheduled for Thursday.
The FDIC assesses member banks a fee to back the deposit insurance fund, which in turn guarantees the safety of depositor funds.
-By Jeffrey Sparshott, Dow Jones Newswires; 202-862-9291; jeffrey.sparshott@ dowjones.com
FDIC Chairman: Framework In Place With Dodd-Frank Act To Resolve Any Failing Financial Entity
9/28/2010 5:12 AM ET
Sheila Bair, Chairman of the Federal Deposit Insurance Corp. (FDIC), Monday said that a framework is in place with the Dodd-Frank Act to resolve any failing financial institution that poses a significant risk to the financial stability of the U.S.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Barack Obama on July 21, is designed to end "too big to fail." Under the Act, the FDIC has broad authority to operate or liquidate a failing financial company, sell assets, and resolve the liabilities of the company immediately after the FDIC's appointment as receiver or when conditions become appropriate.
If selling the assets of the company to another entity is not possible, the FDIC can create a bridge financial company to maintain the failed entity's critical functions. The orderly liquidation process established under Title II of the Dodd-Frank Act imposes the losses on shareholders and creditors, while protecting the economy and taxpayer interests. Similarly, the FDIC will be able to act quickly in resolving non-bank financial companies under the Dodd-Frank Act, Bair said.
Bair also stated that the FDIC, which insures deposits at the nation's 7,830 banks and savings associations, on August 10th has created the new Office of Complex Financial Institutions, and the Notice of Proposed Rulemaking (NPR) is one step forward in the process. The FDIC is also consulting with the Financial Stability Oversight Council (FSOC) members in accordance with the Dodd-Frank Act, and plans to ask for a notational vote next week after the first meeting of FSOC.
In a separate announcement, the FDIC said that its Board of Directors approved a final rule to extend through December 31 the Safe Harbor Protection for Treatment by the FDIC as conservator or receiver of financial assets transferred by an insured depository institution in connection with a securitization or participation.
According to the FDIC, the Board had extended the protections twice previously. The last extension is set to expire on September 30. The safe harbor regulation fully conforms to the provisions of the Dodd-Frank Act.
THE FDIC also announced that the Board has approved the issuance of a proposed rule to provide depositors at all FDIC-insured institutions with unlimited deposit insurance coverage on noninterest-bearing transaction accounts beginning December 31 through December 31, 2012. The proposed rule is intended to implement the provisions of the Dodd-Frank Act.
Under the proposal, the FDIC will create a new, temporary deposit insurance category for noninterest-bearing transaction accounts, which are mainly checking accounts used by businesses for payrolls, accounts payable and other purposes. The FDIC said it will accept comments on the proposed rule through October 15.