JPMorgan, BoA, 4 others to pay $8.9bn

Wall Street’s major financial institutions are preparing to contribute approximately $8.9 billion to replenish the Federal Deposit Insurance Corporation (FDIC) funds following the recent banking crisis. JPMorgan leads the pack as the largest contributor, expected to contribute $3 billion to the US government’s deposit insurance fund, according to a report by Bloomberg.

Bank of America and Wells Fargo will each pay nearly $2 billion, while Citi Group, Goldman Sachs, and Morgan Stanley will contribute $1.5 billion, $400 million, and $270 million, respectively.

The FDIC typically provides insurance coverage for bank deposits up to $250,000 in case of a bank failure.

This year, the fund faced significant challenges due to a series of bank collapses. In March, the FDIC pledged to cover depositors at Silicon Valley Bank and Signature Bank after their demise, resulting in a $15.8 billion deficit in the deposit insurance fund.

Additionally, the failure of First Republic Bank in May led to an estimated $13 billion decrease in the insurance fund.

The banking sector turmoil largely stemmed from the Federal Reserve’s aggressive interest-rate hiking cycle over the past year, aimed at controlling inflation. Since early-2022, the Fed has increased benchmark borrowing costs by 500 basis points. Unfortunately, these rate hikes caused substantial losses on bond portfolios for small and mid-sized US lenders.

The repercussions of the banking sector chaos have persisted for months. JPMorgan CEO Jamie Dimon expressed concern that further interest rate hikes by the Fed could lead to more banking turmoil. He stated in a recent interview, “If rates go up from here, and they might, it could rear its ugly head again.”