The nation’s largest banks could face billions in “special assessments” to recover the costs of bailing out uninsured depositors at Silicon Valley Bank (SVB) and Signature Bank, the Federal Deposit Insurance Corp. (FDIC) has proposed.
In order to bail out SVB and Signature in March, the FDIC invoked the “systemic risk exception,” allowing it to cover all bank deposits, including uninsured accounts that exceeded the $250,000 limit. However, under the law, the FDIC is required to recover the costs of the bailouts by slapping a special assessment on banks.
The final cost of the special assessment will be based on the ultimate tally of the losses incurred by the DIF.
According to the FDIC proposal, the largest banks with at least $50 billion in total assets would pay more than 95 percent of the special assessment to replenish the insurance fund.
“In general, large banks with large amounts of uninsured deposits are the principal beneficiaries of the systemic risk determination,” said Michael Spencer, associate director of the FDIC’s financial risk management branch. “The largest banks also benefited the most from the stability provided to the banking industry under the systemic risk determination.”
Under the plan, banks would pay a 0.125 percent annual rate on uninsured deposits over $5 billion. The first payment would occur in the second quarter of 2024, and the charges would be collected over eight quarters. This structure was determined to maintain sound liquidity conditions in the banking system.
“Defining the assessment base in this way would effectively exclude most small banks from the special assessment,” FDIC Chairman Martin Gruenberg said in a statement.
After it is adopted, the rule will be transferred to a comment period of 60 days and go into effect in the first quarter of 2024.
The Independent Community Bankers of America (ICBA) lauded the FDIC’s decision to exempt the majority of community banks from its special assessments, adding that this decision “recognizes the importance of distinguishing the large banks that pose systemic risk to the financial system from the thousands of local community banks that serve consumers and small businesses.”
“As ICBA has repeatedly said, including in a letter to FDIC Chairman Martin Gruenberg, community banks should not have to bear any financial responsibility for losses to the Deposit Insurance Fund caused by the miscalculations and speculative practices of large financial institutions. Large banks should pay for the special assessment because they are the chief beneficiaries of these two receiverships,” said ICBA President and CEO Rebeca Romero Rainey.
“ICBA will continue working with policymakers to ensure Washington’s response to these failures does not affect the community banks that continue to appropriately manage risk and do right by their customers and communities.”
Rob Nichols, the president and CEO of the American Bankers Association (ABA), noted that it’s appreciated that the FDIC has decided to exclude most community banks from the special assessments.
“Ever since the government chose to invoke the systemic risk exception after the failures of Silicon Valley Bank and Signature Bank, ABA has called on the FDIC to do everything in its power to reduce the size of this special assessment, to follow the law that requires the FDIC to consider which institutions benefited from the decision, and to treat all of America’s banks fairly,” Nichols said.
“Once we receive input from our members, we will be prepared to provide industry feedback to the FDIC on the special assessment, the timing of the expense, and the ongoing increase in quarterly Deposit Insurance Fund assessments on banks.”
Meanwhile, regional banks came under pressure during the May 11 trading session. PacWest Bancorp fell as much as 29 percent after the bank confirmed in a securities filing that deposit outflows resumed in the first week of May, falling 9.5 percent. The bank also said it pledged more assets as collateral to the U.S. Federal Reserve to increase its available liquidity.
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