Proposal would apply special assessment to 113 big banks for covering uninsured depositors at two failed regional banks

Big banks with large amounts of uninsured deposits would mostly pay a special assessment meant to cover the costs to the federal bank deposit insurance agency for protecting uninsured depositors with accounts in two failed, large regional banks, according to a proposal issued Thursday by the board of the agency.

According to the Federal Deposit Insurance Corp. (FDIC) Board, the proposed special assessment would affect 113 banking organizations. The agency said banking organizations with total assets of more than $50 billion each would pay more than 95% of the special assessment. No banking organizations with total assets under $5 billion would be subject to the special assessment, the agency said.

The assessment is meant to cover uninsured deposits that were held at Silicon Valley Bank (SVB) of Santa Clara, Calif., and Signature Bank of New York, N.Y. Both banks, which failed in March, held large amounts of uninsured deposits. Upon their failure, the FDIC stated it would cover the uninsured depositors at both institutions, citing the “systemic risk exemption” under federal banking law to cover the depositors.

The FDIC said Thursday that it estimates approximately $15.8 billion in costs of the failures of SVB and Signature Bank was attributable to the protection of uninsured depositors at the institutions.

Under the proposal, the special assessment would be collected at an annual rate of approximately 12.5 basis points (bp) over eight quarterly assessment periods. However, the agency said, the special assessment rate is subject to change prior to any final rule depending on any adjustments to the loss estimate, mergers or failures, or amendments to reported estimates of uninsured deposits.

“Assuming that the effects on capital and income of the entire amount of the special assessment would occur in one quarter only, it is estimated to result in an average one-quarter reduction in income of 17.5%,” the FDIC said in a release.

The base for the special assessment would be equal to an insured depository institution’s (IDI’s) estimated uninsured deposits reported as of Dec. 31, 2022, the agency said, adjusted to exclude the first $5 billion, applicable either to the IDI, if an IDI is not a subsidiary of a holding company, or at the banking organization level, to the extent that an IDI is part of a holding company with one or more subsidiary IDIs.

Collections would begin with the first quarterly assessment period of 2024 (i.e., Jan. 1 through March 31, 2024, with an invoice payment date of June 28, 2024). The FDIC would continue to collect special assessments for an anticipated total of eight quarterly assessment periods.

“The proposal applies the special assessment to the types of banking organizations that benefitted most from the protection of uninsured depositors, while ensuring equitable, transparent, and consistent treatment based on amounts of uninsured deposits,” said FDIC Chairman Martin J. Gruenberg in a statement. “The proposal also promotes maintenance of liquidity, which will allow institutions to continue to meet the credit needs of the U.S. economy.”

The agency provided additional details, with links to a fact sheet, the draft proposal and more, in a Financial Institution Letter (FIL), FIL-24-2023.

FDIC Board of Directors Issues a Proposed Rule on Special Assessment Pursuant to Systemic Risk Determination