Banks Knock FDIC Over Growing Tab Due to Last Year’s Failures

According to the Federal Deposit Insurance Corp. (FDIC), the projected cost of a special assessment linked to the failures of two banks last year initially stood at $16.3 billion in November. However, this estimate was later revised upward to $20.4 billion. This adjustment has sparked dissatisfaction among major banks, who find themselves shouldering a larger financial burden stemming from the tumultuous events of March 10-12, 2023, when Silicon Valley Bank and Signature Bank collapsed within a span of three days.

During this critical period, the FDIC intervened to halt deposit runs by assuming control of these banks and invoking a systemic risk exception to safeguard extensive uninsured deposits. The resulting costs, now increased to $20.4 billion, are primarily borne by larger banks. They criticize the lack of transparency in the process, which has proven to be more costly than initially anticipated.

Banking advocacy groups, such as the Bank Policy Institute, voice concerns about the FDIC’s apparent disregard for minimizing banks’ financial burdens. The agency, however, defends its actions, citing the need to stabilize the banking system and prevent a broader crisis. The FDIC justifies the cost revisions as part of ongoing asset resolutions and emphasizes efforts to optimize returns from failed banks’ assets.

Karen Petrou from Federal Financial Analytics questions the FDIC’s credibility following the $4 billion discrepancy in cost estimates, highlighting the need for accountability in financial regulatory decisions. Meanwhile, individual banks like PNC Financial Services Group, Fifth Third Bancorp, Regions Financial, and Citigroup face increased financial obligations due to these revised assessments, prompting calls for greater transparency and explanation from regulatory authorities.

The debate also encompasses loans taken by FDIC-managed bridge banks from the Federal Reserve, leading to additional costs for surviving banks. The American Bankers Association urges the FDIC to disclose more information about financing decisions, emphasizing the need for clarity and justification regarding substantial penalty fees incurred by banks.

This ongoing dialogue reflects broader tensions between financial institutions and regulators, underscoring the importance of transparent and accountable regulatory practices in the banking sector.