ABA: FDIC must bolster processes for determining special assessments

The FDIC’s proposed assessment to recover the cost to the Deposit Insurance Fund resulting from the recent bank failures should not set a precedent for future special assessments, the American Bankers Association said today in comments to the agency. Instead, the association recommended that the FDIC bolster its processes to ensure that future systemic risk exceptions, resolutions and special assessments are fair, evidence-based, transparent and predictable.

The FDIC in May proposed a special assessment to recover the costs of protecting uninsured deposits following the closures of Silicon Valley Bank and Signature Bank, which it did by making a systemic risk determination. The FDIC proposal exempts the first $5 billion in uninsured deposits, which effectively carves out smaller institutions from the assessment. Noting that it represents banks of all sizes, ABA said it continues to support the effective carveout for community banks. The association also urged the FDIC to do everything possible to reduce the assessment further through asset sales and other steps, and to take into consideration comments submitted by every institution that weighs in on the proposal.

ABA recommended that the FDIC provide additional details regarding its approach to the resolutions of SVB and Signature so that banks and other stakeholders can better understand the agency’s reasoning, “which is not yet clear.” It expressed concern that the focus on uninsured deposits could lead to “an unwarranted and negative taint of uninsured deposits that would be damaging to banks of all sizes.” It further requested that the FDIC not issue a final rule until the fourth quarter of this year, that a transition option be granted that allows banks to phase in over the eight-quarter collection period the adverse effects of the assessment on their regulatory capital ratios, and that the FDIC “true up” the final quarterly assessment to prevent under or overpayment.

ABA noted that the U.S. banking system is strong and resilient, and that the recent failures were largely idiosyncratic, being the result of lax risk management and balance sheets unprepared for rising interest rates. “However, these failures have raised important questions about, among other things, whether FDIC insurance coverage has kept pace with changes to the banking marketplace and allows banks to compete for customers on equitable footing,” the association said.