The board of directors for the Federal Deposit Insurance Corp. voted Tuesday to propose a long-term management plan for the Deposit Insurance Fund, which provides monetary insurance to FDIC banks in the event of failure. The two main goals of such a plan, which is required under the Dodd-Frank Wall Street Reform and Consumer Protection Act, are to maintain a positive fund balance as well as keep future assessment rates consistent for banks. Proposed changes spawned from a drop in the predicted future losses to the fund, down to $52 billion from $60 billion predicted in June. “While it is difficult to make long-term projections, we are trying to give the industry greater certainty regarding what rates will be over the long run,” said FDIC chairman Sheila Bair. “The trade off we are proposing is lower, more stable and predictable premiums, but a higher reserve.” As of the second quarter of 2010, the DIF balance was negative $15.2 billion. According to the FDIC, the DIF became negative in September of 2009. The current DIF management, adopted in October 2008, plan holds the reserve ratio at 1.15%. The new Restoration Plan proposes to raise that ratio to 1.35% by October 2020, and sets a long-term minimum goal of 2%. In order to attain the reserve ratio — and consequentially return the DIF balance to the positive zone — banks pay an assessment rate to the fund quarterly. The current DIF management plan calls for a three-basis-point increase in a bank’s assessment rate effective Jan. 1, 2011; however, the FDIC’s restoration plan would keep the current rate, currently between 12 and 16 bps, in place. The board aims to lower the rate to 8.5 bps when the reserve ratio reaches 1.15%. The plan also extends the restoration period to seven years from the five year period allotted in the current plan. Write to Christine Ricciardi.

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