Updated May 11, 2023 - Economy & Business

FDIC proposes big banks pay to recover losses in SVB and Signature failures

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Photo: Celal Gunes/Anadolu Agency via Getty Images

The FDIC on Thursday proposed that the nation's largest banks pay a "special assessment" to cover the costs of bailing out uninsured depositors in the failures of Silicon Valley Bank and Signature Bank.

Why it matters: There were concerns that small banks would wind up bearing some of these costs and this proposal heads those off.

Catchup fast: In bailing out SVB and Signature Bank, the FDIC invoked what's called a "systemic risk exception." That allowed it to cover all the banks' deposits even those that were uninsured, exceeding the $250,000 limit.

  • Under the law, the FDIC is permitted to recoup costs spent on covering uninsured depositors by issuing a special assessment on banks.
  • The question lingering had been: Who would pay and how much?

By the numbers: In the wake of the banks' failures last month, the agency estimated its total losses at $22.5 billion, with $19.2 attributable to uninsured deposits.

  • On Thursday, they revised those estimates downward, to $15.8 billion stemming from uninsured deposits. That estimate is subject to change, too.

Details: Because the nation's largest banks benefitted the most when the agency covered uninsured depositors' losses, those big banks would bear the brunt of these costs, the FDIC said.

  • The agency estimates that 113 banks will have to pay, and more than 4,000 smaller banks will not.

How it works: Banks would pay an annual rate of 12.5 basis points (or 0.125%) on uninsured deposits over $5 billion, stretched out over two years and eight payments.

  • For example, a hypothetical bank with $10 billion in uninsured deposits would pay $6.25 million a year for two years, officials estimated on a call with reporters Thursday.

What's next: The FDIC board will vote on the proposal later this morning and, presuming they approve, it will be subject to a 60-day comment period.

  • If the proposal goes through, banks would start paying in June 2024 — and would likely report the hit one-time in their earnings reports.

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