Big US lenders bear cost of replenishing bankruptcy fund

About 113 of the largest U.S. lenders will shoulder the cost of replenishing $16 billion of a key deposit insurance fund spent in recent bank failures, the Federal Deposit Insurance Corporation (FDIC) said Thursday. acronym in English).

The banking regulator will apply a rate of “special evaluation” 0.125% on uninsured deposits from lenders that exceed $5 billion, based on the number of uninsured deposits a bank had by the end of 2022, the FDIC proposed at a meeting of its board of directors.

Although the rate applies to all banks, in practice it will affect those with more than $50 billion in assets, which would cover more than 95% of the cost, the agency said. Banks with less than 5,000 million in assets will not pay any fee.

The fee would be collected over eight quarters beginning in June 2024, but could be adjusted as estimated losses to the insurance fund change. The extension of the term is intended to minimize the impact on bank liquidity and is expected to have a negligible impact on banks’ capital, according to FDIC officials.

The benchmark S&P 500 banking measure was down 0.8% in morning trading, while the KBW regional banking index tumbled 2%.

The FDIC fund, which guarantees customer bank deposits of up to $250,000, stood at $128.2 billion as of the end of 2022, according to the FDIC.

Banks typically pay a quarterly fee to fund the fund, but the FDIC said the special levy is needed to cover the high costs it incurred following the failure of Silicon Valley Bank and Signature Bank in March.

Both banks, which had extremely high levels of uninsured deposits, abruptly failed after depositors fled amid concerns about their financial health.

Regulators declared them critical to the financial system, allowing the FDIC to support all deposits in an attempt to stem the contagion. The seizure of First Republic Bank and its sale to JP Morgan Chase this month is expected to cost that fund another $13 billion.