These requirements are clearly procyclical, lowering or eliminating fees in good times when bank credit is readily available and deposit insurance fund reserves should be built up, and abruptly increasing fees sharply in times of weakness when bank credit availability is under pressure and deposit fund resources are drawn down to cover the resolution of failed banks.
The FDIC recommends that surcharges or rebates should be used to bring the fund back to the target reserve ratio gradually. The FDIC also recommends the possibility of a target range for the designated reserve ratio, over which the premiums may remain constant, rather than a fixed target reserve ratio and abruptly changing premiums. We support such increased flexibility and smoothing of premiums.