WASHINGTON — More than 100 large banks will have to pay a higher-than-expected special assessment to replenish the Deposit Insurance Fund.
The fee, finalized late Thursday by the Federal Deposit Insurance Corp., slightly exceeds what the agency had proposed in the spring after regulators took aggressive steps to protect uninsured depositors in the failures of Silicon Valley Bank and Signature Bank.
Banking industry representatives for months have been raising concerns about the cost and fairness of the fee under consideration. After the final details were released, they again questioned the FDIC’s decision to peg the assessment to banks’ levels of uninsured deposits and complained that the largest banks are paying for a crisis caused by regional banks.
Financial Services Forum President and CEO Kevin Fromer argued that large banks have provided stability to the financial system over the last year.
“The largest U.S. banks generally experienced deposit inflows earlier this year and provided billions of dollars in unsecured deposits to a troubled bank amid the banking turmoil,” he said in a news release. “Forum members again acted as sources of strength and support to the financial system and the broad economy, as they did during the COVID-19 pandemic.”
The FDIC says an estimated 114 banks will pay an annual rate of 13.4 basis points, or a quarterly rate of 3.36 basis points over eight quarterly assessment periods. The rate will be applied to each bank’s assessment base, equal to its uninsured deposits over $5 billion. That’s a slightly higher rate than the 12.5 basis points — or 3.13 quarterly — proposed in May. Banks with less than $5 billion of total assets will not be charged the special assessment.
“Large banks and regional banks, and particularly those with large amounts of uninsured deposits, were the banks most vulnerable to uninsured deposit runs and benefited most from the stability provided under the systemic risk determination,” the FDIC noted in its news release Thursday.
In the final rule — as in the May proposal — the FDIC will use call reports submitted by banks for the quarter ending on Dec.31, 2022, to determine a bank’s assessment base. The agency will begin collecting with the first quarterly assessment period of 2024, which will be Jan. 1 to March 31 of that year.
FDIC estimates the special assessment must make up for a $16.3 billion hit to the DIF. That’s the cost to-date the agency says it has incurred in its efforts to stave off systemic contagion from the failures in the spring, including its decision to cover all uninsured depositors during the crisis. The FDIC noted the potential for adjustments to this figure, as it retains the right to modify or extend the collection period based on changes in the estimated impact on the DIF during the resolution of the failed banks’ remaining assets.
The FDIC board approved the measure through a notational vote Thursday night, after the agency abruptly canceled its public meeting scheduled for Thursday morning.
Jaret Seiberg of TD Cowen Washington Research Group said the rule will hit the biggest firms the hardest and reinforces the idea that the largest firms will have to foot the bill when problems happen in the banking system at large.
“This essentially puts the burden of financing the resolution of SVB and Signature on the largest banks as they have the largest amounts of uninsured deposits on a dollar basis rather than on a percentage basis,” he wrote in a note. “They did not cause the crisis, but they will have to pay for the cleanup.”
Rob Nichols, president and CEO of the American Bankers Association, said he was disappointed the FDIC did not hold an open meeting to debate the final rule. Nichols also questioned the efficacy of using uninsured deposits as a proxy for a bank’s risk profile.
“We continue to have concerns with some aspects of the resolution process and the methodology underlying the special assessment, [and] we continue to caution against the FDIC’s disproportionate focus on uninsured deposits, a category that comprises a diverse set of depositors that is not by itself a proxy for risk,” he said in a statement. “Today’s decision from the FDIC would have benefited from an open meeting and the chance for the public to hear from board members directly.”