The United States is about to exempt smaller lenders from putting up extra money to replenish the government’s Deposit Insurance Fund, and instead saddle larger banks with much of the bill.
The Federal Deposit Insurance Corporation plans to release as early as next week a long-awaited proposal to top up its Deposit Insurance Fund, which was depleted in part by the failures of Silicon Valley Bank and Signature Bank, according to people familiar with the matter. .
Smaller lenders with less than $10 billion in assets would not have to pay, said the people, who were not authorized to discuss the deliberations. There were more than 4,000 institutions below that threshold at the end of last year, FDIC data shows.
Depending on the size of their deposit portfolio, some banks with up to $50 billion in assets could also avoid payments, which could be spread over two years or paid in one lump sum, two of the people said.
Under the plan, larger lenders would face the same fee structure, but could end up having to put up more money due to balance sheet size and the number of depositors, the people said. Deposit risk will not be a factor.
A political battle has been raging over who should be involved in reloading the fund after it was depleted by billions of dollars when the government took the extraordinary step of making all SVB and Signature depositors, even the uninsured , are complete. Smaller banks have lobbied hard to avoid paying so-called special appraisal fees, in addition to the contributions that all lenders make to finance on a quarterly basis.
The FDIC declined to comment on its plans. Martin Gruenberg, the agency’s president, has said he would give special consideration to the fee burden of smaller lenders.
The fees, known as a special assessment, will not cover the estimated $13 billion in losses that will stem from the failure of First Republic Bank, two of the people said. That hit to the fund will be addressed through quarterly fees that lenders put into the fund.
The DIF, as the fund is known, is a key part of the US financial system, used to insure most accounts up to $250,000. All insured banks top it up by paying quarterly fees known as assessments. The amount is based on formulas.
At Signature and SVB, many depositors had millions in their accounts, meaning they were uninsured, and they were businesses in desperate need of cash. The FDIC declared a “systemic risk exception” to use the fund to pay those depositors, plus those who would fall below $250,000.
The FDIC has said that covering uninsured depositors it will cost the DIF $19,200 million and would be paid by special appraisal. The agency can vote next week to present its plan to charge them and then receive public comment on the proposal, before finalizing it months later.
The move to use the DIF to cover uninsured depositors has kicked off a long-simmering debate about whether to raise the $250,000 limit. On Monday, the FDIC said it supported expanding coverage to businesses and presented three options for reviewing the fund.
Beyond the special assessment that could be proposed next week and broader review considerations, the agency is also set to announce changes to the regular quarterly fees that banks must pay to DIF. That plan will help cushion any shock from the First Republic to the DIF, the people said.