On June 23, the FDIC released its quarterly financial update as of March 2023. The Fund had fallen by $12.1 billion to $116.7 billion, or a ratio 1.11% of insured savings.
The largest factor in this decline was an increase of $16.7 billion for the loss provision expense for the two bank failures and potential shortfall on the resolution of First Republic.
The Fund’s revenue was primarily from quarterly premium assessments of $3.3 billion (83% of total). Earnings from investments were only $661 million. In addition to the loss provision and operating expenses of $508 million, the fund realized a loss of $1.7 billion on sale of investments.
The FDIC’s Assessment Practice
The quarterly premiums are calculated on average consolidated total assets minus tangible equity, not insured savings. This assessment base is $20.7 trillion or twice the $10.5 trillion of insured deposits at the end of March.
These quarterly fees are not a single rate for all banks. Rather for the first quarter they are based on CAMELS score and balance sheet complexity. The range from a low of 2.5 to 42 basis points of each bank’s assessment base. The annualized total premium for the entire banking system using the first quarter total is approximately 6.4 basis points.
The FDIC presents no other information about the quarter such as a standard balance sheet, income statement and cash flow reports. So it is not possible to track other performance indicators such as the total loss provisions and management of the FDIC’s investment portfolio.
The March quarter was the first significant bank failure in at least the past eight years as shown in the historical table II-C.
The FDIC’s conclusion about its financial situation is that it will return to its statutory minimum reserve ratio of 1.35% under the DIF Restoration Plan approved on September 2020 by the required time frame of September 2028. What is unstated is how high the quarterly premiums will be will have to be to make this goal.
The NCUSIF’s Status
NCUA posts the NCUSIF’s monthly financial statements for public review. The latest is for May 2023 and shows a stable fund with positive earnings $70.2 million which is an increase versus the prior year’s $67.2 million.
This result is due to the $50 million increase in revenue from the rising yield on investments. This offset a $14 million increase(16.5%) in operating expenses and a $10 million higher loss provision expense compared to the first five months of 2022.
The fund’s retained earnings as a percentage of insured shares has stayed stable throughout the first five months at .297. Adding the 1% required deposit gives a normal operating level of almost 1.3%.
The most challenging part of the NCUSIF’s management is the investment portfolio which reports a YTD return of 1.76%. The overnight portfolio shows a yield of 5.23% for May but the remaining $18.4 billion earned only 1.4%.
The investment portfolio’s market value is $1.4 billion below book. This fall equates to 27.7% of the NCUSIF’s retained earnings. As the fund continues to add to its overnight total, the average duration has slowly declined to 2.86 years at the end of May.
Learning By Comparison
The FDIC’s premiums will continue to be an open-ended fee paid quarterly to build back the FDIC, a process that will continue for the next five years.
The NCUSIF is at the traditional NOL of 1.3%. As it adjusts the management of its investments, the Fund’s primary source of income, this should result in credit unions looking for a premium from their cooperatively designed fund in the years to come.
A dividend would be nice but not likely under the currentChairman. The big question is how many ways will the current Chairman try to manipulate the process in order to keep it all under his control.. He already has told us, in his last congressional testimony , that he wants more control over the NOL and I doubt we will soon get any relief from the mystery calculation, OTR. The OTR allows the agency to continuously pillage growing revenue flow from $21B + in the insurance fund. Let’s watch carefully as the new democratic appointee comes on board.