Insurance Requirements
To receive this benefit, member banks must follow certain liquidity and reserve requirements. Banks are classified in five groups according to their risk-based capital ratio:
- Well capitalized: 10% or higher
- Adequately capitalized: 8% or higher
- Undercapitalized: less than 8%
- Significantly undercapitalized: less than 6%
- Critically undercapitalized: less than 2%
When a bank becomes undercapitalized the FDIC issues a warning to the bank. When the number drops below 6% the FDIC can change management and force the bank to take other corrective action. When the bank becomes critically undercapitalized the FDIC declares the bank insolvent and can take over management of the bank.
At Q4 2010 884 banks had very low capital cushions against risk and were on the FDIC's "problem list". This was nearly 12 percent of all federally insured banks, the highest level in 18 years.
Read more about this topic: Federal Deposit Insurance Corporation
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