Bank Bailout: FDIC Slaps Fees on Institutions After SVB, Signature Collapses

WASHINGTON – The fallout from the spring banking crisis is hitting bank balance sheets. The Federal Deposit Insurance Corporation (FDIC) Board of Directors today approved a final rule imposing a special assessment on roughly 114 banking organizations to cover the staggering $16.3 billion lost when Silicon Valley Bank and Signature Bank went belly up. The move, stemming from a systemic risk determination announced back on March 12, 2023, aims to replenish the Deposit Insurance Fund (DIF) after the FDIC stepped in to protect uninsured depositors – a decision that sparked immediate controversy and accusations of rewarding reckless banking.

The FDIC claims the assessment will fall squarely on the institutions that most benefitted from protecting those uninsured deposits. The rate is set at 13.4 basis points, kicking in with the first quarterly assessment period of 2024 (January 1 – March 31), with invoices due June 28, 2024. This isn’t a one-time hit; the FDIC plans to collect these assessments over eight quarterly periods. The assessment base is calculated on each institution’s estimated uninsured deposits as of December 31, 2022, with a carve-out for the first $5 billion in uninsured deposits. This means smaller banks are largely shielded from the fee, while larger players will foot the bulk of the bill.

FDIC Chairman Martin J. Gruenberg tried to spin the assessment as a necessary measure to maintain stability. “The final rule 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,” he stated. Gruenberg also touted the assessment’s potential to “promote maintenance of liquidity,” suggesting it will help banks weather future storms. But critics are already labeling it a bailout for wealthy depositors and a burden on healthy banks that didn’t contribute to the risky behavior that led to the collapses.

The FDIC acknowledges receiving comments on its proposed rule and claims to have addressed concerns regarding transparency and accuracy. They’ve added clarifications and a provision allowing for corrections to estimated uninsured deposit figures based on the FDIC’s review of an institution’s reporting methodology. However, the core of the assessment remains unchanged: banks are being forced to pay for the mistakes of others. The agency’s Fact Sheet and Federal Register Notice detailing the final rule are now available, though many analysts are still digging through the details to determine the full impact.

While no banking organizations with total assets under $5 billion will be subject to the special assessment, those above that threshold are bracing for impact. The FDIC is essentially transferring the cost of the failures of Silicon Valley Bank and Signature Bank – institutions known for catering to venture capital firms and crypto investors – onto the broader banking system. This move raises serious questions about moral hazard and whether it encourages banks to take on excessive risk, knowing the FDIC will step in to protect uninsured depositors.

The Grimy Times will continue to investigate the full ramifications of this assessment and the ongoing fallout from the spring banking crisis. We’ll be tracking which institutions are hit hardest and whether this leads to further consolidation within the banking industry. This isn’t just about numbers; it’s about the stability of the financial system and the potential for future bailouts. Documents related to the assessment, including a memorandum to the Board of Directors, are available on the FDIC’s website.