May 11 (Reuters) – Major U.S. lenders will bear most of the cost of replenishing a Deposit Insurance Fund that has drained $16 billion from the collapse of Silicon Valley Bank and two other lenders, though mid-sized banks will be on the hook. the Federal Deposit Insurance Corporation (FDIC) said on Thursday.
The bank regulator will apply a “special assessment” fee of 0.125% to uninsured deposits from lenders over $5 billion, based on the amount of uninsured deposits held by the bank at the end of 2022, as proposed by the FDIC at a board meeting.
While the fee applies to all banks, the agency said, lenders with more than $50 billion in assets would cover more than 95% of the cost in practice. Banks with less than $5 billion in assets will not pay any fees. About 113 banks are expected to pay the fee.
The 14 largest US lenders will need to pay out an estimated $5.8 billion annually, which could erode their earnings per share by an average of 3%, Credit Suisse analyst Susan Roth Katzky wrote in a report.
The tax will be collected over eight quarters starting in June 2024, but can be adjusted as estimated losses for the insurance fund change. The extended timeline is intended to minimize the impact on bank liquidity and is expected to have a minimal impact on the bank’s capital, according to FDIC officials.
JPMorgan Chase & Co (JPM.N) is expected to pay annual fees of about $1.3 billion, followed by $1.1 billion for Bank of America Corp. (BAC.N) and $898 million for Wells Fargo & Co. (WFC.N). The three banks declined to comment.
“This is a higher valuation than we would have expected as the FDIC seeks a refund over only two years,” TD Coin analyst Jarrett Seberg wrote in a research note. “We expected the agency to spread the payments over at least three years.”
The S&P 500 Banking Index (.SPXBK) fell 0.6% on Thursday, while the KBW Regional Banking Index (.KRX) fell more than 2%.
The FDIC fund, which guarantees customers bank deposits of up to $250,000, was $128.2 billion at the end of 2022, according to the Federal Deposit Insurance Corporation.
Banks usually pay a quarterly fee to fund the fund, but the FDIC said the special tax was needed to cover the high costs incurred after the failure of Silicon Valley and Signature Bank in March. Both banks, which had extremely high levels of uninsured deposits, suddenly failed after depositors fled amid concerns about their financial health. Regulators declared themselves critical to the financial system, allowing the FDIC to subsidize all deposits in an effort to stop the spread of contagion.
The seizure of First Republic Bank and its sale to JP Morgan Chase this month is expected to cost another $13 billion.
Other regional lenders with high percentages of uninsured deposits include Comerica Bank (CMA.N), Western Alliance Bank (WAL.N), Zion Bank (ZION.O) and Synophus Financial (SNV.N), according to a Reuters analysis from the past. month based on December data.
Comerica shares fell nearly 7%, Zions Bancorp and Synovus shares fell more than 4%, and Western Alliance fell nearly 1%. The banks did not immediately respond to requests for comment.
Small Banks cheers
By law, the FDIC has discretion in designing fees, and FDIC Chairman Martin Gruenberg said Thursday that the proposal is aimed at those who have benefited most from the subsidy.
“In general, large banks with large amounts of uninsured deposits benefited more from comprehensive risk identification,” he said in a statement.
The Independent Community Bankers Group of America (ICBA), the largest lobby group for small banks in Washington, applauded the plans.
“Community banks should not bear any financial responsibility for losses incurred by the Deposit Insurance Fund due to the miscalculations and speculative practices of large financial institutions,” ICBA Chief Executive Rebecca Romero Reni said in a statement.
The FDIC’s board of directors approved the proposal Thursday along party lines, with its three Democrat board members backing it and supporting it. Two Republicans vote noarguing that the banks that were on the hook for paying the biggest were generally the biggest beneficiaries From flight to safety after the collapse of the SVB. The agency will now solicit feedback from the banking industry and the public, before eventually finalizing the new fees.
TD Cowen’s Sieberg said he doesn’t see the opponents’ arguments as prevalent because it would effectively exempt systemically important global banks from special evaluation.
“We don’t see it as politically feasible,” said Seberg.
Additional reporting by Nikit Nishant in Bengaluru; Editing by Anil D’Silva
Our standards: Thomson Reuters Trust Principles.