The company proposed at a board meeting that the banking regulator apply a 0.125% “special assessment” fee to uninsured bank deposits that exceed $5 billion, depending on the size of the deposit. these deposits with a bank at the end of 2022.
The company said the fee applied to all banks but would effectively only be applied to banks with assets over $50 billion, which would cover more than 95% of the cost. Banks with assets below $5 billion will not pay any fees.
The fee will be collected over eight quarters starting in June 2024, but this is subject to change as estimates of the insurance fund deficit change. According to SAMA officials, the extended deadline is intended to reduce the impact on bank liquidity, and it is expected that the measure will not have a significant impact on banks’ capital.
The banks sub-index of the Standard & Poor’s 500 index fell 0.8% in morning trade, while the regional banks index (KBW) fell 2%.
According to the Federal Deposit Insurance Corporation, the size of its fund, which guarantees customer deposits in banks up to $250,000, stood at $128.2 billion at the end of 2022.
Banks typically pay quarterly fees to fund the fund, but the company said the one-time fee was necessary to cover high costs incurred by the fund after the collapse of Silicon Valley and Signature banks in March.
Both banks collapsed suddenly after depositors fled amid fears over the safety of their financial positions. They both had very high levels of unsecured deposits. Regulators have declared them important for the banking system, allowing the institution to safeguard all deposits in a bid to prevent the crisis from spreading further.
The fund is expected to cost another $13 billion following the takeover and sale of First Republic to JPMorgan Chase this month.
Tribute to small banks
The Federal Deposit Insurance Corporation sets the fees by law. Its chairman, Martin Grunberg, said Thursday that the proposal targets those who have benefited most from the fund’s money.
The cartoon was praised by the Independent American Bankers Association, the largest group representing small banks in Washington.
“Local banks should not bear any financial responsibility for losses incurred by the Deposit Insurance Fund as a result of miscalculations and speculation by large financial institutions,” said Rebecca Romero Raini, the association’s chief executive. , in a press release.
The Federal Deposit Insurance Corporation’s board of directors approved the proposal Thursday, after its three Democratic Party members voted in favor and the two Republican Party members voted against. The institution will now seek input from the banking industry and the public before finalizing the new tariffs.
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