The FDIC Board is considering today a Notice of Proposed Rulemaking (NPR) to implement a special assessment to recover the loss to the Deposit Insurance Fund (DIF) from actions taken to protect uninsured depositors pursuant to the systemic risk determination announced on March 12, 2023. A special assessment in such circumstances is required by the Federal Deposit Insurance Act (FDI Act).1
Following the failures of Silicon Valley Bank on March 10, 2023, and Signature Bank on March 12, 2023, the FDIC was appointed as the receiver for both institutions.2, 3 On March 12, 2023, the Secretary of the Treasury, acting on the recommendations of the FDIC and the Federal Reserve and after consultation with the President, determined that the FDIC could use systemic risk authorities under the FDI Act to protect uninsured depositors in resolving those institutions.4
The proposal before the FDIC Board would apply an annual special assessment rate of approximately 12.5 basis points to an assessment base that would equal an insured depository institution’s (IDI) estimated uninsured deposits reported as of December 31, 2022. For IDIs that are not part of a holding company, the first $5 billion in estimated uninsured deposits would be excluded from the assessment base. For IDIs that are part of a holding company, the first $5 billion of the combined banking organization’s estimated uninsured deposits would be excluded.
Defining the assessment base in this way would effectively exclude most small banks from the special assessment. In implementing the special assessment, the law requires the FDIC to consider the types of entities that benefit from any action taken or assistance provided as well as economic conditions, the effects on the industry, and other factors deemed appropriate and relevant.5 In general, large banks with large amounts of uninsured deposits benefitted the most from the systemic risk determination.
As proposed, it is estimated that a total of 113 banking organizations would be subject to the special assessment. Banking organizations with total assets over $50 billion would pay more than 95 percent of the special assessment. No banking organizations with total assets under $5 billion would be subject to the special assessment.
The total amount collected for the special assessment would be approximately equal to the losses attributable to the protection of uninsured depositors at both Silicon Valley Bank and Signature Bank. These losses are currently estimated to total $15.8 billion. As with all failed bank receiverships, this estimate will be periodically adjusted as assets are sold, liabilities are satisfied, and receivership expenses are incurred.
In order to preserve liquidity at IDIs, and in the interest of consistent and predictable assessments, the special assessment would be collected over eight quarters. Because the estimated loss to these receiverships will be periodically adjusted, the FDIC would retain the ability to cease collection early, extend the special assessment collection period one or more quarters beyond the initial eight-quarter collection period, or impose a final shortfall special assessment on a one-time basis after the receiverships for Silicon Valley Bank and Signature Bank are terminated.
Assuming that the effects on capital and income of the entire amount of the special assessment would occur in one quarter only, it is estimated to result in an average one-quarter reduction in income of 17.5 percent.
The proposal applies the special assessment to the types of banking organizations that benefitted most from the protection of uninsured depositors, while ensuring equitable, transparent, and consistent treatment based on amounts of uninsured deposits. The proposal also promotes maintenance of liquidity, which will allow institutions to continue to meet the credit needs of the U.S. economy. I am therefore supportive of this notice of proposed rulemaking.
I look forward to the public comments on the proposal. The proposed special assessment would be applicable no earlier than the first quarterly assessment period of 2024, providing institutions time to prepare and plan for the special assessment. Payments would not begin until the end of the second quarter.
Finally, I would like to thank FDIC staff for their thoughtful work on this proposed rule.
1 12 U.S.C. §1823(c)(4)(G)(ii)(I).
2 FDIC PR-16-2023. “FDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, California.” March 10, 2023. https://www.fdic.gov/news/press-releases/2023/pr23016.html.
3 FDIC PR-18-2023. “FDIC Establishes Signature Bridge Bank, N.A., as Successor to Signature Bank, New York, NY.” March 12, 2023. https://www.fdic.gov/news/press-releases/2023/pr23018.html.
4 12 U.S.C. 1823(c)(4)(G). See also: FDIC PR-17-2023. “Joint Statement by the Department of the Treasury, Federal Reserve, and FDIC.” March 12, 2023. https://www.fdic.gov/news/press-releases/2023/pr23017.html.
5 12 U.S.C. 1823(c)(4)(G)(ii)(III).