Yahoo Finance FDIC Asks Big US Banks to Pay for SVB, Signature Bank Collapse
Per a new proposal by the Federal Deposit Insurance Corporation (“FDIC”), big lenders in the United States, with assets worth more than $5 billion, will have to pay for the collapse of Silicon Valley Bank and Signature Bank.
Generally, all FDIC-insured banks pay a quarterly fee and the FDIC replenishes its deposit insurance fund with this fee. But, this time, the FDIC has decided to levy a special assessment to recover the losses associated with the uninsured depositors.
Both Silicon Valley Bank and Signature Bank, which had extremely high levels of uninsured deposits, abruptly failed after depositors fled amid concerns over their financial health.
The special levy will be collected over eight quarters starting June 2024. But, it could be adjusted as estimated losses to the insurance fund change. The extended timeline aims to minimize the impacts on bank liquidity and is expected to have a negligible impact on bank capital.
The FDIC has estimated that it will cost $15.8 billion for it to protect all the depositors at the failed banks who were above the FDIC’s $250,000-per-account insurance level.
While the special assessment fee applies to all banks with assets in excess of $5 billion, lenders with more than $50 billion in assets are expected to cover above 95% of the cost. Then again, banks with less than $5 billion in assets will not have to pay any fee. Thus, around 113 banks will have to bear the fee.
The CEO of the Independent Community Bankers of America, Rebeca Romero Rainey, stated, “Community banks should not have to bear any financial responsibility for losses to the Deposit Insurance Fund caused by the miscalculations and speculative practices of large financial institutions.”
As a result of this proposal, the top 14 U.S. lenders will likely have to pay $5.8 billion a year.
JPMorgan Chase & Co. JPM is expected to pay an annual fee of $1.3 billion, whereas Bank of America Corporation BAC will have to pay $1.1 billion. Wells Fargo & Company WFC will likely pay $898 million.
Banking Crisis in the United States
In the last two months, the fastest rate hikes since the 1980s led to a crisis in the banking industry and resulted in the collapse of four banks — Silvergate Capital, Signature Bank, Silicon Valley Bank and First Republic Bank.
After their collapse in March, Signature Bank and Silicon Valley Bank were seized by the FDIC and then sold to New York Community Bancorp, Inc. NYCB and First Citizens BancShares, Inc. FCNCA, respectively.
NYCB, through its bank subsidiary, Flagstar Bank, acquired $38 billion in assets and assumed $36 billion of liabilities of Signature Bank, while not buying any digital asset banking, crypto-related assets or the fund banking business. FCNCA assumed Silicon Valley Bank’s assets worth $110 billion, deposits worth $56 billion and loans worth $72 billion.
Then, First Republic Bank, the second-biggest bank failure in history, was acquired by JPM. The deal is expected to complement JPM’s wealth business and result in increased penetration within the high-net-worth clients. The company expects the transaction to generate more than $500 million of “incremental net income” annually.
Notably, many merger deals have fallen victim to the crisis. Various banks have mutually terminated their previously announced merger transactions.
The banking turmoil, which started two months ago and led to deposit runs across the industry, seems to have been contained to some extent for now. However, it is not expected to be a smooth sailing experience for the industry yet. Higher interest rates and a potential recession/severe economic slowdown are some of the major headwinds that the banking industry will have to face in the coming months.
Currently, JPM and NYCB carry a Zacks Rank #2 (Buy). BAC, WFC and FCNCA carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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