The biggest US banks will be hit with nearly $16 billion in extra fees over two years under a plan by the Federal Deposit Insurance Corporation to recoup losses associated with bailing out Silicon Valley Bank and Signature Bank in March.
The FDIC on Thursday proposed that about 113 banks undergo a so-called “special assessment.” The largest lenders, whose assets total at least $50 billion, would pay more than 95% of the total cost. The figure includes both giants like JPMorgan Chase and Bank of America, as well as regional lenders that have been at the center of the recent US banking turmoil.
The proposal spares the vast majority of the 4,500 FDIC-insured U.S. banks, and the fees are calculated based on the banks’ uninsured deposits on the basis that $15.8 billion of the SVB’s $18.5 billion cost and losses signatures were due to coverage from accounts larger than the $250,000 limit and most of these accounts are in large banks.
Banks with assets below $5 billion would be spared the fee. This will surely please the influential trade association for that part of the industry, the Independent Community Bankers of America, which has advocated a distinction between large and small banks since the SVB began to falter.
The FDIC said payments won’t begin until the second quarter of 2024 and will be collected over two years, translating to an annual rate of 0.125% of each bank’s uninsured deposits.
FDIC officials said on Thursday they could shorten the collection period or extend it depending on when total losses are covered. The regulator estimated that if the full amount was due in just one quarter, this would lead to an average 17.5% drop in income for the affected banks. Officials said they expect banks to pay it off immediately.
The total cost of bailing out SVB and Signature depositors fell to $18.5 billion from more than $20 billion, largely because the FDIC now expects to recover more from the sale of SVB’s assets than previously anticipated. BlackRock handles a large portion of these sales.
FDIC officials on Thursday said loss estimates would be adjusted periodically as assets are sold, liabilities are satisfied or expenses related to receivership accrue.
The special assessment comes just two months after the FDIC, Federal Reserve and Treasury Department were forced to step in to avert a more pronounced bout of banking sector contagion after SVB and Signature suffered a depositor rush. During a long weekend of trading, authorities invoked a “systemic risk” exception for the two lenders, which allowed the FDIC to guarantee all deposits.
More recently, an emergency settlement was brokered between the FDIC and JPMorgan on First Republic.
There will be a 60 day comment period before the Special Judgment Rule is finalized.
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