FDIC considers charging nation’s biggest banks to cover $23B cost of bank failures

The Federal Deposit Insurance Corp. (FDIC) is reportedly facing almost $23 billion in costs from recent bank failures and is considering directing a larger portion of that financial burden to the nation’s largest banks, according to people familiar with the matter. The FDIC plans to propose a “special assessment” on the industry in May to support a $128 billion deposit insurance fund that has been impacted by the recent collapses of Silicon Valley Bank and Signature Bank. The regulator is under political pressure to spare small banks and has noted that it has flexibility in setting those fees.

Behind the scenes, officials are seeking to limit the strain on community lenders by shifting a significant portion of the expense towards much larger institutions. This would add to the already multibillion-dollar tabs for JPMorgan Chase & Co., Bank of America Corp., and Wells Fargo & Co. Talks on setting the size and timing of the assessment are in the early stages. Leaning heavily on big banks is seen as the most politically acceptable solution.

Representatives for the FDIC, JPMorgan, Bank of America, and Wells Fargo have declined to comment. The question of how to spread the cost of SVB’s and Signature’s failures is already a hot topic in Washington. Lawmakers have pressed FDIC Chairman Martin Gruenberg, Treasury Secretary Janet Yellen, and Federal Reserve Chair Jerome Powell over who will shoulder the burden, especially after an unusual decision to backstop all of those banks’ deposits.

“I’m concerned that Arkansans will have to subsidize Silicon Valley Bank and Signature Banks deposits, and maybe others that come forward,” said Republican Senator John Boozman at a hearing last week. Yellen assured him the FDIC has discretion in deciding which banks will pay.

“We’re going to be keenly sensitive to the impact,” Gruenberg added at a hearing on Wednesday, when asked about the strain on community banks. “We have the discretion to tailor that assessment to the institutions that most directly benefited.”

Both SVB and Signature Bank had soaked up billions in uninsured deposits that proved fickle, forcing the firms to incur losses in hasty asset sales. In the fallout, customers at small banks across the country moved cash to giant banks, showering those lenders with cheap funding.

Banks pay into the FDIC’s insurance fund every quarter as they soak up deposits qualifying for the agency’s protection. As long as the banks find ways to earn even more by lending out or investing the cash, they earn a profit. The FDIC’s fees vary widely, with a bank’s size and complexity and confidential regulatory ratings playing significant roles. This means a big bank pays more, not just because it houses more deposits, but also because its rate is steeper.

The FDIC estimates that SVB’s failure will cost $20 billion, in addition to the $2.5 billion bite it expects from Signature. It is unclear how quickly the FDIC wants to collect the assessment.