FDIC plans ‘comprehensive review’ of deposit insurance; will propose rule in May for payments to cover costs of two failed banks

A comprehensive review of the federal bank deposit insurance system, as well as a review of the supervision by the deposit insurance agency of one of the two recently failed banks, will be conducted and both reported by the agency by May 1, according to remarks by the leader of the agency released Monday.

Scheduled to testify Tuesday before the Senate Banking Committee, Federal Deposit Insurance Corp. (FDIC) Board Chairman Martin Gruenberg will also say his agency would release a proposed rulemaking in May for the special assessment to banks to cover the costs of the two failed banks, Silicon Valley Bank (SVB) of Santa Clara, Calif., and Signature Bank of New York, N.Y.

According to the testimony, Gruenberg will tell the committee that the review of the deposit insurance system will include policy options for consideration related to deposit insurance coverage levels, excess deposit insurance, and the implications for risk-based pricing and deposit insurance fund adequacy.

A review of the supervision by FDIC of Signature Bank will be conducted by the agency’s chief risk officer, Gruenberg will say.

The FDIC Board leader will also say the banks’ failures “demonstrate the implications that banks with assets over $100 billion can have for financial stability.”

“The prudential regulation of these institutions merits serious attention, particularly for capital, liquidity, and interest rate risk,” Gruenberg will add. “This would include the capital treatment associated with unrealized losses in banks’ securities portfolios. Resolution plan requirements for these institutions also merit review, including a long-term debt requirement to facilitate orderly resolution.”

Regarding costs, Gruenberg will say his agency estimates that the cost to the FDIC Deposit Insurance Fund (DIF) of resolving SVB at $20 billion, and the cost of resolving Signature Bank at $2.5 billion.

Of the estimated loss amounts, Gruenberg will say, approximately 88%, or $18 billion, is attributable to the cost of covering uninsured deposits at SVB while approximately two-thirds, or $1.6 billion, is attributable to the cost of covering uninsured deposits at Signature Bank. “I would emphasize that these estimates are subject to significant uncertainty and are likely to change, depending on the ultimate value,” according to the remarks.

He will remind the panel that, under the Federal Deposit Insurance (FDI) Act, the loss to the DIF arising from the use of a systemic risk exception must be recovered from one or more special assessments on insured depository institutions, depository institution holding companies, or both, as the FDIC determines to be appropriate.

Both SVB and Signature were granted the systemic risk exceptions.

Under the FDI Act, Gruenberg will say the notice of proposed rulemaking scheduled for May would address the types of entities that would benefit from the action taken, economic conditions, the effects on the industry, and such other factors as the FDIC deems appropriate and relevant.

Remarks by Chairman Martin J. Gruenberg: Recent Bank Failures and the Federal Regulatory Response before the Committee on Banking, Housing, and Urban Affairs, United States Senate