May 11 (Reuters) – 113 of the largest U.S. lenders will bear the cost of replenishing deposit insurance funds that have been drained of $16 billion by recent bank failures, the Federal Deposit Insurance Corporation (FDIC) said on Thursday.
The banking regulator will apply a “special assessment” fee of 0.125% to uninsured deposits of lenders above $5 billion based on uninsured deposits held by the bank by the end of 2022.
While the fee applies to all banks, in practice lenders with more than $50 billion in assets will cover 95% of the cost, the agency said. Banks with less than $5 billion in assets pay no fee.
The top fourteen U.S. lenders will have to pay $5.8 billion a year, which could reduce average earnings per share by 3%, Credit Suisse analyst Susan Roth Katzke wrote in a report.
The levy will be levied in eight quarters starting June 2024, but may be adjusted as assessed losses for change in insurance funds. The extended deadline is intended to minimize the impact on bank liquidity and is expected to have a small impact on bank capital, according to FDIC officials.
The S&P 500 Banks Index (.SPXBK) fell 0.6% in midday trade, while the KBW Regional Bank Index (.KRX) fell more than 2%.
According to the FDIC, the FDIC Fund, which guarantees customers’ bank deposits up to $250,000, was $128.2 billion at the end of 2022.
Banks usually pay a quarterly fee to fund the fund, but the FDIC said a special levy was needed to cover the huge costs incurred by the failures of Silicon Valley Bank and Signature Bank in March. Both banks, with huge uninsured deposits, suddenly failed as depositors fled amid concerns about their financial health. Regulators declared they were critical to the financial system, allowing the FDIC to freeze all deposits in an effort to prevent the spread of contagion.
First Republic’s takeover and sale to JPMorgan Chase this month is expected to cost the fund another $13 billion.
Other regional lenders with high ratios of uninsured deposits include Comerica Bank ( CMA.N ), Western Alliance Bank ( WAL.N ), Zions Bank ( ZION.O ) and Synovus Financial ( SNV.N ), according to a Reuters analysis. Month based on December data.
Shares of Comerica fell nearly 7%, Zions Bancorp and Synovus both fell more than 4%, while Western Alliance fell nearly 1%. The banks did not immediately respond to requests for comment.
Small banks cheer
Under the law, the FDIC has discretion in shaping the fee, and FDIC Chairman Martin Grunberg said Thursday the proposal targets those who have benefited most from the backstop.
“In general, large banks with large amounts of uninsured deposits benefited most from systematic risk determination,” he said in a statement.
The Independent Community Bankers of America (ICBA), Washington’s top small bank lobby group, praised the plans.
“Community banks should bear no financial responsibility for losses to deposit insurance funds caused by the miscalculations and speculative practices of large financial institutions,” ICBA CEO Rebeca Romero Rainey said in a statement.
The FDIC board on Thursday approved the proposal along a partisan line, with three of its Democratic members supporting it and two of its Republican members not. The agency will now seek feedback from the banking industry and the public before finalizing the new fee.
Niketh Nishant reports in Bangalore; Cinematography by Anil de Silva
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