Republicans ask FDIC to consider uninsured deposits post-failures

Bloomberg News

WASHINGTON — A group of Republican lawmakers called for tweaks to the Federal Deposit Insurance Corp.'s special assessment rulemaking, done to replenish the agency's fund to resolve failed banks in the wake of the failures of Silicon Valley Bank and First Republic Bank. 

Those changes would benefit regional banks and put a larger burden on larger banks, according to the letter sent by a group of Republicans led by Rep. Andy Barr, R-Ky., chairman of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy. 

As the special assessment proposal currently stands, regional and community banks — which the lawmakers said did not benefit as significantly from the systemic risk exception declared by federal regulators to stem the outflow of deposits from those institutions to the largest banks after the failure of Silicon Valley Bank and First Republic — would be negatively impacted. 

The FDIC's proposed way of calculating the special assessment, which is required after federal regulators made the systemic risk exception, would base the amount that firms pay on the amount of uninsured deposits that all but the smallest banks held as of the end of 2022. The lawmakers argue that should be pushed back to before March 31, 2023, which they said would capture uninsured deposit flight to the largest banks. 

"The proposed date fails to account for movement of deposits from regional banks to other institutions in the days and weeks following the failures and invocation of the systemic risk determination," the lawmakers said in the letter. "Therefore, for the proposed rule to apply to those banks that benefited the most from the assistance provided under the system risk determination, a date closer to the systemic risk determination date should be applied to better account for the movement of deposits to larger institutions that occurred contemporaneous to and in the aftermath of the determination." 

The Republican lawmakers also said that the proposed rulemaking on the special assessment "is not occurring in a vacuum," referencing potential changes from bank regulators to capital requirements for some institutions. 

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"Combined, those anticipated changes and the special FDIC assessment will have disproportionate and lasting repercussions on borrowers, depositors, and communities served by regional banks," the lawmakers said in the letter. "Those banks will be faced with difficult choices of where and how to deploy fewer resources for consumers and customers, and reduced credit opportunities will result." 

Banks — with the exception of community banks, who are largely exempt from the fee — pushed back strongly on the way that the FDIC will calculate how much they owe to replenish the Deposit Insurance Fund in comment letters to the agency. 

And late last month, the FDIC warned that some banks are "not reporting estimated uninsured deposits in accordance with the instructions" in their call reports after a sharp uptick in the number of banks restating the amount of uninsured deposits they hold. 

Some Democratic lawmakers, including Sen. Elizabeth Warren, D-Mass., and Rep. Katie Porter, D-Calif., criticized the agency for not doing more to prevent banks from undercounting the deposits, which would mean those banks owe less in the special assessment.