FDIC Proposes Special Assessment on Banks to Replenish Insurance Fund

Large banks will foot the bulk of the bill for bailout funds

Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg

Win McNamee / Staff / Getty Images

The Federal Deposit Insurance Corp. (FDIC) voted 3-2 in favor of a "special assessment" on member banks to replenish the agency's deposit insurance fund (DIF) after the collapse of Silicon Valley and Signature banks in March.

Key Takeaways

  • The FDIC spent $15.8 billion in protecting uninsured depositors at Silicon Valley and Signature banks.
  • Large banks with more than $50 billion in assets would be asked to pay 95% of the replenishment costs.
  • Institutions with less than $5 billion will not be required to contribute.

The bank collapses cost the fund a total of $22.5 billion, $15.8 billion of which was attributed to protecting uninsured depositors, according to the FDIC. This special assessment would cover the amount put toward uninsured deposits and would be paid out over eight quarters. The first payment is due at the end of the second quarter of 2024.

“The proposal applies the special assessment to the types of banking organizations that benefitted most from the protection of uninsured depositors, while ensuring equitable, transparent, and consistent treatment based on amounts of uninsured deposits,” said FDIC Chairman Martin J. Gruenberg in a statement. “The proposal also promotes maintenance of liquidity, which will allow institutions to continue to meet the credit needs of the U.S. economy.”

The proposal also said the largest banks were the chief beneficiaries of the recent bailouts. The costs of replenishing the fund would therefore fall on the largest banks, with smaller institutions off the hook. The "too big to fail" banks will pay $9.5 billion of the total, said Rohit Chopra, director of the Consumer Finance Protection Bureau and board member.

In total, 113 banking institutions with assets over $50 billion would pay 95% of the costs to replenish the fund, while those with under $5 billion would not be required to contribute.

However, FDIC Vice Chairman Travis Hill did not agree with the staff's assessment that the largest banks had the highest levels of uninsured deposits and said he would vote against the proposal. Director Michael Hsu said he supported the proposal as it establishes a "healthy precedent" and minimizes costs to community banks.

The FDIC insures all deposits up to $250,000 if a bank fails, but its insurance funds have been depleted by this year's failures in the regional banking system. The agency took extraordinary steps after the failure of Silicon Valley Bank and promised to cover all depositors, with backing from the Treasury and Federal Reserve.

Another Bloomberg report last week said the FDIC was considering a loss-sharing agreement with non-bank entities, such as private equity funds, to increase the potential for takeover bids of struggling lenders.

JP Morgan Inc. (JPM) and PNC (PNC) submitted the only serious bids for First Republic as it failed, so the FDIC hopes that new rules would entice a larger collection of buyers. As the FDIC does not regulate non-banks, the institutions would not be able to bid for the full business of a lender but may be interested in a package of loans, or other assets.

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  2. Federal Deposit Insurance Corporation. "FDIC Releases Semiannual Update on the Deposit Insurance Fund Restoration Plan."

  3. FDIC. "Memo to Directors-Notice of Proposed Rulemaking on Special Assessments Pursuant to Systemic Risk Determination."

  4. Youtube. "FDIC Board of Directors Public Meeting".

  5. Bloomberg. "FDIC Mulls Loss-Sharing with Non-Banks".

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