Deposit Insurance Options Paper
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Deposit Insurance Options Paper

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Details:

  • Publisher's site:
    https://www.fdic.gov/ | FDIC.gov
  • Corporate Authors:
    Federal Insurance Deposit Corporation (FDIC)
  • Description:
    I. INTRODUCTION (Pg 1)

    The Need for Reform (Pg 2)

    How Should the FDIC Price Risk? (Pg 3)

    How Should New Deposits be Treated? (Pg 4)

    How Should Losses be Funded? (Pg 5)

    How Should the Coverage Levels be Determined? (Pg 5)

    Overview of Options Paper (Pg 6)

    Review Process and Comments on Options Paper (Pg 7)

    II. PRICING DEPOSIT INSURANCE FOR INDIVIDUAL BANKS (Pg 9)

    Textbox: Oliver, Wyman & Company Approach to Bank Level Pricing (Pg 9)

    Options Relying on Supervisory Evaluations (Pg 12)

    Options Relying on Objective Factors (Pg 14)

    Non-Public Bank-Specific Information (Pg 14)

    Bank Call Reports (Pg 16)

    Market Information (Pg 17)

    Hybrid Approaches (Pg 20)

    Customized Financial Contracts (Pg 20)

    III. FUNDING DEPOSIT INSURANCE LOSSES (Pg 22)

    User Fee Model (Pg 23)

    Long-Term Premium Rates Based on Historical Experience (Pg 23)

    Moving Average Approach (Pg 24)

    Analytical Approaches (Pg 25)

    Textbox: Oliver, Wyman & Company Analytical Framework (Pg 25)

    Adjustments for Current Insurance Expenses (Pg 27)

    Linking Premium Rates to the Insurance Fund (Pg 27)

    Textbox: Solvency Standard – Oliver, Wyman & Company (Pg 29)

    Setting a Hard Target for the Insurance Fund (Pg 29)

    Setting a Soft Target for the Insurance Fund (Pg 30)

    Mutual Model (Pg 30)

    Rebates (Pg 30)

    Banks Hold Explicit Claims on the Mutual Insurance Fund (Pg 31)

    Introducing Private Sector Features to the Deposit Insurance System (Pg 32)

    Funding Systemic Risk (Pg 33)

    IV. COVERAGE LIMITS (Pg 35)

    Past and Current Coverage Rules (Pg 36)

    Effects of Changing Coverage (Pg 37)

    Immediate Effect (Pg 37)

    Longer-Term Effect (Pg 38)

    Moral Hazard, Implicit Protection and Industry Structure (Pg 41)

    Options (Pg 44)

    Status Quo (Pg 44)

    Formal Indexing (Pg 45)

    Simplification (Pg 46)

    Additional Coverage for Municipal and Other Public Deposits (Pg 46)

    Optional Excess Coverage (Pg 48)

    V. NEXT STEPS (Pg 50)

    VI. REFERENCES (Pg 51)

    VII. ATTACHMENTS. (Pg 53)

    A. THE BIF AND SAIF SHOULD BE MERGED (Pg 53)

    B. CDIC-LIKE SCORING SYSTEMS (Pg 56)

    B-1. The CDIC System. (Pg 56)

    B-2. CDIC-Style Hybrid Approach (Pg 57)

    C. OVERVIEW OF THE RISK-BASED PREMIUM SYSTEM (Pg 60)

    D. DIFFERENTIATING AMONG A-RATED INSTITUTIONS (Pg 62)

    D-1. Using Prompt Corrective Action Capital Ratios to Distinguish the Risk of Institutions within a Capital Subgroup (Pg 62)

    D-2. Peer Group Comparisons (Pg 65)

    D-3. Historical Benchmarks (Pg 66)

    E. EXPECTED LOSS PRICING (Pg 67)

    E-1. Incorporating Credit Rating Agency Information in Deposit Insurance Pricing (Pg 67)

    E-2. Using Default Risk Premiums on Subordinated Debt To Estimate Banking Organization Expected Loss (Pg 70)

    E-3. Proportion of Insurance Loss Borne by the FDIC (Pg 72)

    F. SIMULATIONS (Pg 74)

    F-1. Steady Premium System (Pg 74)

    F-2. Simulation of Risk-Related Premiums, 1982 to 1999 (Pg 75)

    F-3. Optimal Fund Size and Premium Adjustment Simulations (Pg 79)

    G. EFFECT OF A COVERAGE LIMIT INCREASE TO $200,000 ON BANKS OF DIFFERENT ASSET SIZES (Pg 83)

  • Content Notes:
    Chart 1: Failure Rates by Composite Rating (Pg 12)

    Table 1: OCC Risk Matrix (Pg 13)

    Table 2: Differences Between 1A-Rated Banks in the Top 10% and Bottom 10% (Pg 16)

    Chart 2: Subordinated Debt Yield Spreads For All Banking Organizations, 1/1/97 to 6/09/00 (Pg 18)

    Chart 3: Top 50 Institutions (by assets): EDF Values, 1/97 to 4/00 (Pg 19)

    Table 3: Insurance Rate Required to Equate Premium Revenue with Fund Expenses and Insurance Losses (Pg 24)

    Table 4: Various Moving Averages (Pg 24)

    Chart 4: Deposit Insurance Premiums: 1980-1998 Based on a Moving Average of Losses and Expenses to Insured Deposits (Pg 25)

    Chart A: Bank Risk Profile (Pg 27)

    Chart B: FDIC Profile for Single Bank (Pg 27)

    Chart C: FDIC Cumulative Loss Distribution (Pg 27)

    Table 5: BIF Rates Under Different Assessment Schemes (Pg 28)

    Table 6: Rating Calibrations (Pg 29)

    Table 7: Coverage Increases (Pg 36)

    Chart 5: The Real Value of Coverage Has Declined (Pg 36)

    Chart 6: Year-Over-Year BIF-Insured Deposit Growth (Pg 38)

    Chart 7: Shift In Financial Asset Holdings: Households and Non-Profit Organizations (Pg 39)

    Chart 8: Relative Growth of Households' Liquid Financial Assets (Pg 40)

    Chart 9: Deposit-to-Asset and Loan-to-Deposit Ratios Reflect Reduced Deposit Funding for Commercial Banks (Pg 42)

    Table 8: Coverage Limits in the Past & Corresponding Coverage Limits in 1998 (Pg 44)

    Chart 10: Coverage Levels from Prior Years Indexed to 1998 (Pg 45)

    Table B-1.1.: Summary of Criteria or Factors and Scores (Pg 56)

    Table B-1.2: Premium Categories and Rates (Pg 56)

    Table B-1.3: Results of the First Two Years of the CDIC (Pg 56)

    Table B-2.1: Distribution of Institutions (BIF and SAIF) by Composite Raiting in a Four-Premium Cateogry System (Pg 57)

    Table B-2.2: Factors/Measures and Corresponding Scores (Pg 58)

    Table D-1.1: Spreads Between the 99th and 1st Percentile Values for 1A-Rated Financial Institutions for Four PCA Ratios (Pg 63)

    Table D-2.1: Hypothetical Distribution of "A" Rated Insured Institutions Based on Peer Group Comparisons (Pg 65)

    Table D-3.1: Hypothetical Distribution of "A" Rated Insured Institutions Based on Threshold Financial Ratio Levels (Pg 66)

    Table E-1.1: Assessment Rates Derived From Historical Default Rates and Losses on Assets (Pg 68-69)

    Table E-2.1: Average 1-Year Likelihood of Default from the Cumulative 3-Year Likelihood Using Risk-Neutral Pricing (%) (Pg 71)

    Table E-2.2: Expected Loss as a Percent of Assets Based on the Average 1-Year Likelihood of Default Using Risk-Neutral Pricing and Historical Rates of Losses (Pg 71)

    Table E-3.1: Balance Sheet for Three Example Banks (Pg 72)

    Table E-3.2: Loss Distribution If Three Example Banks Failed (Pg 72)

    Table F-1.1: Bank Insurance Fund, 1982-1999 (Pg 74)

    Table F-2.1: Highest Rate Schedule Under Existing Assessment Authority (Pg 75)

    Table F-2.2: Highest Rate Schedule Used in the Simulation (Pg 75)

    Table F-2.3: Bank Insurance Fund, 1982-1999 (Pg 77)

    Table F-2.4: Bank Insurance Fund, 1982-1999 (Pg 78)

    Table F-3.1: MOFS per Domestic Deposits (%) (Pg 79)

    Chart F-3.1: Fund Balance Monte Carlo Simulation with 23 bp Maximum Premium (Pg 80)

    Chart F-3.2: Fund Balance Monte Carlo Simulation with 15 bp Maximum Premium (Pg 81)

    Chart G-1.1: Upper Bound Analysis of Increased Coverage (Pg 83)

    Chart G-1.2: Upper Bound Analysis of Increased Coverage (Pg 84)

  • Pages in Document:
    88
  • Dataset Download URL:
  • Format:
    PDF
  • Release Date:
    08/21/2000
  • Agencies Involved:
    Federal Deposit Insurance Corporation (FDIC);Federal Savings and Loan Insurance Corporation (FSLIC);Board of Governors of the Federal Reserve System (The Fed);Office of the Comptroller of the Currency (OCC);Office of Thrift Supervision (OTS);U.S. Department of the Treasury;Federal Financial Institutions Examination Council (FFIEC);
  • Bank Involved:
    First National Bank of Keystone
  • Fdic Employee Involved:
    Donna Tanoue
  • Law Involved:
    Federal Deposit Insurance Corporation Improvement Act of 1991;Deposit Insurance Funds Act of 1996;Gramm-Leach-Bliley Act (GLBA);Depository Institutions Deregulation and Monetary Control Act of 1980;Banking Act of 1933 (Glass-Steagall Act);Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994;Omnibus Budget Reconciliation Act of 1993;
  • Other Institutions Involved:
    Independent Community Bankers of America;Oliver, Wyman & Company (Oliver, Wyman);Canada Deposit Insurance Corporation (CDIC);American Bankers Association;
  • Related Regulation:
    Regulation Q
  • Source:
    FDIC Website
  • Main Document Checksum:
  • Download URL:
  • File Type:

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