Washington, D.C. – The Bank Policy Institute responded today to the FDIC’s proposed special assessment – the fee that the agency will levy on a subset of banks to recoup costs to the Deposit Insurance Fund resulting from the guarantee of uninsured depositors during bank failures this spring.
“The FDIC’s goal of simplicity across the board is understandable, but this proposal is flawed and could have undue effects on banks that the proposal fails to explain,” said Tabitha Edgens, senior vice president and senior associate general counsel at the Bank Policy Institute. “The FDIC should address these flaws in any future assessment, engage in deeper analysis of the factors underpinning this proposal and provide clear guidance to the public on how it would implement any similar assessments in the future.”
At a glance: The base for the proposed special assessment would be an insured bank’s estimated uninsured deposits as of Dec. 31, 2022, excluding the first $5 billion of the institution’s estimated uninsured deposits. This approach would exclude about 97 percent of all insured banks, meaning it applies only to larger banks and excludes all smaller banks. The charges would be collected at an annual rate of 12.5 basis points over eight quarters (3.13 basis points per quarter). The FDIC estimates that the special assessment will yield total revenues of $15.8 billion, equal to the FDIC’s estimate of the losses to the DIF from the protection of SVB and Signature’s uninsured depositors.
Flaws: The FDIC’s rationale contains several flaws. It lacks transparency, does not provide sufficient analysis to underpin its approach and may have outsize regulatory consequences for the affected banks. Flaws in the proposal include:
- Using uninsured deposits as the special assessment’s sole basis and failing to differentiate between the stability levels of various types of uninsured deposits. For example, operational deposits, which corporate clients must maintain at their bank to receive certain services such as payroll servicing, are generally treated under existing regulations as more stable than other types of deposits, but the proposal ignores these differences.
- Asserting that larger banks, particularly those with more uninsured deposits, benefited most from the systemic risk determination. This broad assertion ignores meaningful differences in these banks’ deposit profiles and business models, and the FDIC fails to provide any meaningful evidence to support its claim.
Unintended consequences: The FDIC fails to in the proposal, but should in moving to finalize the rule, consider how the special assessment interacts with regulatory capital requirements, regular quarterly assessments, and other regulatory and accounting requirements to ensure the special assessment does not have an undue effect on assessed banks.
Next steps: The FDIC should undertake more analysis on this proposed rule and provide forward-looking guidance on special assessments that would make such measures more predictable and transparent. The FDIC should also provide regular updates on the status of the receivership process, including an accounting of the actual receivership costs and the impact on the assessed banks.
- The FDIC should undertake rigorous analysis to support its assertion that larger banks benefited most from the systemic risk exception invocation.
- The FDIC should inform the public on what benefits it will consider and the types of data it will consult in determining which banks benefit from any future use of that exception. Forward-looking guidance should address other factors that the FDIC will consider if it imposes a special assessment related to a systemic risk exception in the future.
- The FDIC should seek input from the public when formulating this guidance.
About Bank Policy Institute.
The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.