May 11 (Reuters) – Big U.S. lenders will bear most of the cost of replenishing a deposit insurance fund drained of $16 billion by the collapse of Silicon Valley Bank and two other lenders, although mid-sized banks will also be involved. , the Federal Deposit Insurance Corporation (FDIC) said 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. Around 113 banks are expected to pay the fee.
The top 14 U.S. lenders should earn $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.
JPMorgan Chase & Co ( JPM.N ) is expected to pay $1.3 billion in annual fees, followed by $1.1 billion for Bank of America Corp ( BAC.N ) and $898 million for Wells Fargo & Co ( WFC.N ). All three banks declined to comment.
“This is a higher estimate than we expected as the FDIC seeks to recover funds in two years,” TD Cowen analyst Jaret Seiberg wrote in a research note. “We expected the agency to pay in at least three years.”
The S&P 500 Banks Index (.SPXBK) fell 0.6% on Thursday, while the KBW Regional Banks 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 the special levy should be levied to cover higher costs caused 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 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 bipartisan line, with three of its Democratic board members supporting it. Two Republicans Vote noBanks argue that high payers are usually the biggest beneficiaries. A flight to safety after the collapse of the SVP. The agency will now seek feedback from the banking industry and the public before finalizing the new fee.
TD Cowen’s Siberg doesn’t see the dissent’s arguments prevailing because it would effectively exempt global systemically important banks from special ratings.
“We don’t see that as politically feasible,” Seeberg said.
Niketh Nishant reports in Bangalore; Cinematography by Anil de Silva
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