Giant banks and regional lenders with more than $5 billion in assets will help pay for the March failures of Silicon Valley Bank and Signature Bank, according to a new proposal from the Federal Deposit Insurance Corporation, sparing small community institutions from footing part of the bill.
The FDIC now estimates that it will cost $15.8 billion for it to protect all depositors at those two institutions who were above the FDIC’s $250,000-per account insurance level. It took that step to prevent a wider panic in the financial system.
The FDIC typically replenishes its Deposit Insurance Fund with quarterly fees paid by all FDIC-insured banks. This time it is levying a special assessment to recover losses associated with the uninsured depositors and thus has more flexibility to decide which banks should contribute most.
The proposal it announced Thursday asks the largest banks – those with total assets over $50 billion — to pay more than 95% of the special assessment.
A total of 113 banks would pay something. The overwhelming majority – some 96%, or roughly 4,500 banks — wouldn’t pay anything.
Smaller community banks lobbied the FDIC hard to be excluded from extra payments tied to the fall of Silicon Valley Bank or Signature, arguing that they didn’t engage in risky practices that led to those seizures.
The charge for each specific bank would be calculated by using a formula tied to the amount of total uninsured deposits it held as as of Dec 31. The FDIC said it will extend payment terms over eight quarters to mitigate the effects on banks.
The ultimate cost of the special assessment could change depending on the ultimate losses to the Deposit Insurance Fund. There are still a number of assets in FDIC receivership, and as those are liquidated that could change the amount the FDIC has to absorb.
The FDIC board will vote on this proposal Thursday morning, and it is expected to be adopted.
Once adopted, it would go to comment period for 60 days, with the aim of adopting a final rule later this year and ultimately take effect in the first quarter of 2024.
Payments would not begin until the end of the second quarter.