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<\/a><\/p>\n(Reuters) – The Federal Deposit Insurance Corp is expected to propose next month how to make the U.S. banking sector pay for an estimated $23 billion hole in its insurance fund by the collapse of Silicon Valley Bank and Signature Bank in March.<\/p>\n
The agency has broad authority in setting the terms of what is known as a “special assessment” to fill the gap and precisely what this will look like is still an open question. <\/p>\n
Banking trade organizations tell Reuters they have yet to hear specifics about the assessment. The FDIC declined to comment. <\/p>\n
Here is what is known about the assessment and the insurance fund: <\/p>\n
What is the Deposit Insurance Fund?<\/p>\n
The Deposit Insurance Fund (DIF) is a pot of cash that the FDIC maintains to guarantee up to $250,000 of depositors’ money. As an insurance premium, banks ordinarily pay a quarterly “assessment” based on a set methodology drawing on financial data and risk determinations.<\/p>\n
To stop the spread of panicked withdrawals throughout the banking system last month, the FDIC guaranteed all deposits at SVB and Signature Bank, even those over $250,000. Such losses require the FDIC to impose a “special assessment” to replenish the DIF.<\/p>\n
The law does not define the “assessment base” for the special assessment or which banks will pay it. There is not a time frame for recouping the funds. Echoing the testimony of FDIC Chair Martin Gruenberg, former FDIC Chair Sheila Bair told Reuters on April 6 the agency has “a lot of latitude” in designing the special assessment.<\/p>\n
What happened the last time?<\/p>\n
Currently, the law requires the FDIC to maintain $1.35 in the fund for every $100 of insured deposits. By the end of December, DIF’s balance stood at $128.2 billion, meaning the bank failures in March could account for about 18% of the fund.<\/p>\n
During the financial crisis of 2008 the sheer volume of bank failures pushed the DIF about $20 billion into the red. After a period of public comment, the FDIC’s May 2009 final rule on a special assessment put the cost burden more heavily on the shoulders of the biggest financial institutions.<\/p>\n
In the second quarter of 2009, for example, JPMorgan Chase & Co booked a $675 million pre-tax charge for the special assessment, which it said shaved 10 cents off earnings per share. Wells Fargo reported an 8 cent per-share hit to earnings.<\/p>\n
Who will pay the special assessment?<\/p>\n
When the FDIC initially called for a special assessment amounting to 20 basis points of banks’ insured deposits in the aftermath of the financial crisis of 2008, small-town bankers pushed back hard, letters written at the time show.<\/p>\n
Top officials in Washington have signaled that regulators likely won’t make the smaller banks pay for last month’s failures this time round either. This reflects a change Congress and the FDIC made after the 2008 meltdown to make larger, riskier banks contribute proportionately more to maintaining the DIF.<\/p>\n
An industry representative who asked not to be named told Reuters that bankers were hoping the ultimate bill would be less than $23 billion after the FDIC completes sales of SVB and Signature Bank assets.<\/p>\n
\n(Reporting by Douglas Gillison and Hannah Lang in Washington; Editing by Anna Driver)<\/p>\n
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