Big US to pay back FDIC

The U.S. Federal Deposit Insurance Corporation (FDIC) has announced that the nation’s largest lenders, around 113 of them, will be responsible for replenishing the $16 billion hit to its deposit insurance fund caused by recent bank failures. This will be achieved through a new “special assessment” fee of 0.125%, which will be applied to the uninsured deposits of banks in excess of $5 billion based on the amount of uninsured deposits a bank held at the end of 2022. The new fee will be collected over eight quarters beginning in June 2024, with the extended timeline designed to minimize the impact on bank liquidity and capital.

Although the fee applies to all banks, it will mainly affect banks with more than $50 billion in assets, covering over 95% of the cost. No bank with less than $5 billion in assets will pay any fee, according to the FDIC. The regulator proposed the new fee as it looks to replenish hefty costs incurred in backing all depositors at Silicon Valley Bank and Signature Bank after their failure in March. The fund, which stood at $128.2 billion at the end of 2022, guarantees customers’ bank deposits of up to $250,000.

The decision to stand behind all deposits at Silicon Valley Bank and Signature Bank triggered the extra fee, which is expected to be compounded by the seizure of First Republic Bank, and sale to JP Morgan Chase, this month. The FDIC has discretion in designing such fees, and the proposal targets those who benefited most from the backstop. Large banks with large amounts of uninsured deposits benefited the most from the systemic risk determination, according to FDIC Chairman Martin Gruenberg. The FDIC board will vote on the staff proposal later on Thursday, and after expected approval, the FDIC will solicit feedback from the banking industry and the public before ultimately finalizing the new assessment.

In practice, banks with more than $50 billion in assets would be most affected by the new fee. The FDIC expects the fee to have a negligible impact on bank capital. Typically, banks insured by the FDIC pay quarterly fees to finance the deposit insurance fund, which protects depositors with less than $250,000 in a bank account in the event of a bank’s failure. The recent bank failures prompted the regulator to propose the extra fee to cover the costs incurred in backing all depositors at Silicon Valley Bank and Signature Bank.