Banks Brawl Over Refilling FDIC Fund Hit by SVB, Signature Fails

A proposal to make the biggest banks bear the costs of backstopping the failures of Silicon Valley Bank and Signature Bank drew fire from the targeted institutions.

The Federal Deposit Insurance Corp. in May proposed a special assessment on banks with over $5 billion in assets to cover the costs of the roughly $15.8 billion hit to the agency’s deposit insurance fund used to support SVB and Signature’s uninsured depositors.

The payouts to uninsured depositors came after federal regulators invoked what is known as the “systemic risk exemption,” which allows the FDIC to fully protect all of a bank’s depositors, even those with accounts over the $250,000 threshold that are typically protected by federal deposit insurance.

The FDIC expects that banks with at least $50 billion in assets will pay around 95% of the special assessment under the proposal.

The Financial Services Forum, a trade group representing the eight largest banks, said the FDIC is improperly singling out the country’s biggest lenders, including those that served as a source of strength during the regional banking crisis this spring.

While the biggest banks saw a net deposit inflow during the crisis, that’s because they’re viewed as safer and better-managed than regional lenders, not because they benefited from the systemic risk exemption, according to the group’s letter.

“At a minimum, we request that the final rule acknowledge the differentiated role played by our member institutions and not mischaracterize the role of our member firms,” the forum said. The group estimates its members will pay 60% of the special assessment.

Comments to the FDIC were due July 21.

Regional lenders argued that the biggest banks should pay the lion’s share of the FDIC’s payout to SVB and Signature customers because they were the biggest beneficiaries of the government’s work during the crisis.

“This is because many depositors view such institutions as “too big to fail” and flock to them in times of financial instability,” the Mid-Size Bank Coalition of America said in its comment letter.

Mid-size banks saw eight times more deposit outflow than the biggest banks between the fourth quarter of 2022 and the first quarter of 2023, according to the letter.

The coalition also said the final special assessment should exclude some uninsured deposits that are backed by collateral. Such uninsured deposits would include those from municipalities and custody transactions.

The Bank Policy Institute and the American Bankers Association also supported excluding those deposits. The ABA is officially neutral on the FDIC’s proposal because it has both large and community bank members.

Relatedly, Zions Bancorporation said in a letter that some banks are making changes to their quarterly reports to the FDIC to “reduce their reported uninsured deposits” and potentially face a smaller hit in the special assessment.

The FDIC on Monday warned banks against massaging their uninsured deposit bases in quarterly call reports based on collateralization.

“The existence of collateral has no bearing on the portion of a deposit that is covered by federal deposit insurance,” the FDIC said.

The Independent Community Bankers of America praised the FDIC’s assessment proposal, saying that it targeted the correct banks to pay up for supporting SVB and Signature account holders.

“ICBA commends the FDIC for recognizing that thousands of community banks with fewer than $5 billion in uninsured deposits should not be responsible for subsidizing large banks’ outsized reliance on uninsured deposits, and the resulting systemic risks posed to the financial system,” the group said.