Warren urges FDIC to reject plan to pay assessment fee with Treasuries

Bloomberg News

WASHINGTON — Sen. Elizabeth Warren, D-Mass., has asked Federal Deposit Insurance Corp. Chairman Martin Gruenberg to deny a reported plan by large banks to pay a special assessment fee related to the failures of Silicon Valley Bank and Signature Bank with Treasury bonds.

Under a proposed rule by the agency, larger banks will bear most of the brunt of a special assessment fee that the FDIC must levy after it issues a systemic risk exception for Silicon Valley Bank and Signature Bank to protect the institutions' failed deposits after they failed.  Under the rule, banks with uninsured deposits below $5 billion will pay nothing under the proposal, and those with uninsured deposits in excess of $5 billion will be assessed on their uninsured deposits above that threshold.

Some large banks, according to a Wall Street Journal report, have been floating the idea of paying the fee, which will replenish the deposit insurance fund with underwater Treasury bonds. 

"In simple terms, the biggest banks — who have experienced a surge in deposits after the SVB failure, received favorable loans from the Fed's Bank Term Funding Program in March 2023, and had $30 billion of their own deposits guaranteed in the First Republic sale — are now seeking to pay back the gap in the deposit insurance fund with devalued assets, getting those assets off their books, while leaving the federal government to assume the risk," Warren said in the letter. 

The politics of which banks should contribute the most to replenish the deposit insurance fund have been tricky. While the Biden administration has stressed throughout the banking turmoil that the cost of the bank failures will be borne by banks, and not taxpayers, some lawmakers have repeatedly noted that banks are likely to pass off the cost of the assessment to consumers in the form of fees and other charges.

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The executives of larger banks, particularly those with large piles of uninsured deposits have been wary of complaining, as the Biden administration's decision to step up stemmed from fear that they would also see runs on their own banks. 

"Approval of this proposal would be an outrageous breach of the FDIC's responsibilities, and I urge you to reject it or any similar approach that would unjustly enrich big banks at taxpayer expense," Warren said in the letter.