In March, the failures of Silicon Valley Bank and Signature Bank threatened to create cascading stress throughout the banking system and inflict serious damage on the economy.
To prevent the situation from becoming even more of a disaster, the Treasury Secretary, at the unanimous recommendation of the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation Board of Directors, and in consultation with the President, invoked the statutory Systemic Risk Exception to protect the banks’ “uninsured” depositors.
Saving “uninsured” depositors cost the Deposit Insurance Fund an estimated $16.3 billion. Today, the FDIC is voting to finalize a special assessment to recoup this loss, with an eye towards those banks that benefited the most from this public support. I am voting for the special assessment because it uses a simple and sensible methodology that exempts community banks and makes the largest too-big-to-fail banks bear most of the cost.
More important than finalizing this special assessment, we need to accelerate work to make sure our financial system isn’t so fragile that ad hoc government support is commonplace.
Special Assessment Design
The law requires the FDIC to levy a special deposit insurance assessment to recoup all losses associated with protecting “uninsured” depositors in the extraordinary event that the Systemic Risk Exception is invoked.1 The statute further requires the FDIC to consider the types of entities that benefited from the government support when designing the special assessment.
The FDIC proposed collecting the funds by charging banks a flat fee for eight quarters on their total "uninsured" deposits as of December 31, 2022, with an exemption for the first $5 billion in "uninsured" deposits.
The final assessment we are voting on today maintains this structure.
First, the special assessment will apply to 114 large banking organizations and exempt almost 4,500 small banks. The eight largest Wall Street banks will pay about $9.7 billion, or roughly 60% of the assessment. Large banks obviously benefited the most from this government support. This action reinforced the widely held belief among market participants and the public that the government won’t let “uninsured” depositors of large banks take a loss.
Second, the special assessment will be charged according to a bank’s "uninsured" deposit levels. The more "uninsured" deposits a bank had, the more it benefited from the stability provided by government support.
Now, I’d like to turn to some conduct we saw in the wake of the FDIC’s proposed special assessment. After the FDIC proposed charging banks a fee on their "uninsured" deposits, many banks, including some of the largest Wall Street banks, amended their December 31, 2022, regulatory reporting to reduce their "uninsured" deposits.
This has led to a reduction in reported "uninsured" deposits of more than $250 billion. Of course, some of these restatements may have been made for legitimate reasons. Banks may not have been paying enough attention to the particulars of the reporting instructions and then took a closer look given the stakes. But others may have been trying to engage in accounting gimmickry to avoid paying their share.
The FDIC has launched a compliance review to ensure banks are accurately reporting "uninsured" deposit levels. If the agency finds that certain banks falsely amended their "uninsured" deposit levels, we will need to hold them accountable.
- 12 U.S.C. § 1823(c)(4)(G)(ii)