The Federal Deposit Insurance Corporation (FDIC) is proposing a special assessment on banks to repay the insurance fund’s losses following uninsured deposit coverage. The deposit insurance fund fell below its required funding level in recent years, prompting the debate on how to shore up the fund.
Proposal to be Put Out for Public Comment, Impact on Community Banks to be Considered
The proposal will be put out for public comment, and the impact on community banks will be considered. Industry players are concerned about the allocation of the special assessment among banks, and lawmakers have raised similar concerns. Banks may pass the extra assessment cost on to customers in the form of less favorable rates or additional fees.
Longer-Term Goal to Boost Reserve Ratio
The FDIC’s longer-term goal is to boost the reserve ratio to 2% to help the fund withstand financial crises. The losses tied to Silicon Valley Bank and Signature will put a major dent in the reserve ratio. When the funding level falls below the minimum, the FDIC has about eight years to get the ratio back to 1.35%. The insurance fund’s estimated costs tied to recent bank failures outweigh the total amount collected from bank assessments in the past couple of years.
FDIC Plans Special Assessment on Largest Banks
The FDIC is planning to make largest banks pay for $23 billion deposit insurance fund. It is said that a special assessment in May will safeguard deposit insurance funds after it was raided to cover deposits at collapsed banks, Silicon Valley Bank and Signature Bank of New York.
Panic Among Depositors After Collapse of Smaller Regional Lenders
The panic among depositors after collapse of smaller regional lenders caused them to deposit their money into larger banks. Large banks gained $120 billion in deposits while smaller lenders lost $109 billion since collapse of Silicon Valley Bank and Signature Bank of New York.
Republicans Concerned Backstop Amounts to a Bailout of Failed Lenders
Republicans are concerned that the backstop amounts to a bailout of failed lenders with the cost being passed on to consumers in the form of additional banking fees. Banks in rural Oklahoma are about to pay a special fee to bail out millionaires in San Francisco.
Talk of Shifting Costs to Large Lenders
Regulators want large US banks to help cover the cost of recent bank failures. The FDIC is considering shifting the $23 billion cost of two high-profile bank failures to large lenders like J.P. Morgan Chase and Bank of America. Officials want to limit the burden on smaller banks by moving a large portion of the cost to bigger banks to cover the cost of the failures.
White House Calls for Tougher Regulations for Mid-Sized Banks
The White House has called for tougher regulations for midsized banks such as SVB and Signature. Possible new regulations could include restoring sections of the Dodd-Frank law that were eliminated under President Donald Trump and either temporarily extending FDIC insurance to all bank customers or raising the cap above the current maximum of $250,000.
In conclusion, while banks are still grappling with losses due to the pandemic, this latest proposal by FDIC puts additional pressure on them. Although it is expected that this proposal would primarily impact larger banks, it is feared that smaller ones might also be affected by the additional costs passed onto customers. It remains up for public comment, so we’ll have to wait and see how it plays out.
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