As the banking crisis continues to fester, the US is poised to exempt small banks from the obligation to provide additional funding to supplement the government's basic deposit insurance fund, with large banks instead bearing most of the costs, according to media reports.
The Federal Deposit Insurance Corporation (FDIC) plans to announce a much-anticipated supplement to the Deposit Insurance Fund (DIF) as early as next week, according to people familiar with the matter.
Along with the bursting of Silicon Valley Bank (SVB) and the collapse of Signature Bank, a significant portion of the fund has already been used.
The DIF is a key part of the U.S. financial system because it is used to insure most deposit accounts up to $250,000, except for single-account deposits over $250,000. The DIF is supplemented by a quarterly fee called a "special assessment" paid by all insured banks, which is based on a specific formula calculation.
Under the DIF proposal, small banks with less than $10 billion in assets would no longer have to shell out fees, several people familiar with the matter said. FDIC data show that more than 4,000 banks had assets below that level at the end of last year.
Depending on the size of their deposit portfolios, some banks with as much as $50 billion in assets could also avoid the payments, which could be spread over the next two years or paid in a lump sum, two of the people familiar with the matter said.
The people familiar with the matter also said that under the plan, larger banks would all face the same fee structure, but may eventually have to commit more money because of the size of their balance sheets and the number of depositors. In addition, deposit risk would not be a consideration.
The fund has already invested billions of dollars in the previous banking crisis, and the political battle around who should bear the burden of replenishing the fund has been raging as the government took the extraordinary step of making deposit insurance protection available to all SVB and Signature Bank depositors (even those without insurance).
The FDIC has said that covering those uninsured depositors would cost the deposit insurance fund $19.2 billion in capital and would be paid for by special assessments. And while smaller banks have been lobbying hard to avoid paying the so-called special assessment fee, all banks have otherwise been required to make quarterly contributions.
The FDIC declined to comment on the plan. The agency will likely vote next week to propose a new payment plan, which will then be subject to public comment and finalised in a few months. FDIC Chairman Martin Gruenberg has said he would give special consideration to the fee burden on smaller banks.