Banks to pay billions more in FDIC fees due to SVB and Signature failures.

FDIC Proposes Special Assessments for Largest Banks to Recover Costs of Bailing Out Uninsured Depositors

The Background

The Federal Deposit Insurance Corp. (FDIC) has proposed that 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. In March, the FDIC invoked the “systemic risk exception” to cover all bank deposits, including uninsured accounts that exceeded the $250,000 limit, to bail out SVB and Signature. However, under the law, the FDIC is required to recover the costs of the bailouts by slapping a special assessment on banks.

The Proposal

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. If the FDIC board adopts the measure, 113 banking organizations will pay something, while most of the remaining 4,500 entities won’t pay anything. However, according to data from the Federal Reserve, 45 banks possess more than $50 billion in assets.

The Plan

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. 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 Impact

The final cost of the special assessment will be based on the ultimate tally of the losses incurred by the Deposit Insurance Fund (DIF). FDIC officials estimate it will cost $15.8 billion to shield all depositors at the two failed banks, down from the previous projection of $22.5 billion. According to Michael Spencer, associate director of the FDIC’s financial risk management branch, “large banks with large amounts of uninsured deposits are the principal beneficiaries of the systemic risk determination.” 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 th.”