Some banks are undercounting their uninsured deposits, FDIC says

Al Drago/Bloomberg

WASHINGTON — The Federal Deposit Insurance Corp. said that some banks need to fix their financial statements to better reflect their uninsured deposits, a striking statement from the banking regulator in the aftermath of the turmoil among large regional banks earlier this year. 

The agency, in May, said it would charge a "special assessment," as is required by law, to recoup the losses to the deposit insurance fund caused by the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank. The FDIC put forward a plan that would exempt the smallest institutions for the fee, and determine the amount of the fee by the amount of uninsured deposits a bank held as of the end of 2022. 

Some banks are "not reporting estimated uninsured deposits in accordance with the instructions," in their call reports, the agency said in a letter posted to its website. The agency said that the letter does not apply to institutions with less than $1 billion in total assets that do not report estimated uninsured deposits. 

The FDIC said that a bank's chief financial officer and multiple directors "are required to attest to the correctness" of call reports. 

According to one report from the Financial Times, the fourth quarter saw a sharp uptick in the number of banks restating the amount of uninsured deposits they hold. 

Zions Bancorporation, like many midsized lenders, wrote to the FDIC about its special assessment plan, saying that the largest banks should pay for the costs of the failures of SVB because those institutions benefited the most from the regional bank crisis. Zions included, however, a line saying that "it is also our understanding that some large banks have already begun to amend their year-end Call Reports to reduce their reported uninsured deposits." 

Losses to the deposit insurance fund were especially large in the failures of Silicon Valley Bank and Signature, after the Biden administration granted a systemic risk exception that allowed the FDIC to back all uninsured deposits at those two institutions. Doing so, banking agencies argued, stemmed the flow of uninsured deposits at other similarly situated banks. 

The Financial Services Forum, in a letter to the FDIC on how the agency is levying its special assessment, said that its members, the largest banks in the country, didn't benefit as much from the systemic risk exception as large regionals. The largest banks provided stability for the banking system during this time, the trade group argued. 

"By differentiating neither among different types of uninsured deposits nor among 'large banks,' the Proposal and its accompanying preamble discussion obscure the material differences in various types of uninsured deposits and the stabilizing role played by the U.S. GSIBs during the recent turmoil," Financial Services Forum said in its letter. "Rather than being adversely affected by the failures of SVB and Signature (and therefore beneficiaries of actions taken under the SRE), the U.S. GSIBs generally experienced deposit inflows and acted as sources of strength and support to the broader banking sector to avoid further market turmoil and cost to the economy, as they did during the COVID-19 pandemic." 

The FDIC's proposal also doesn't distinguish between different types of uninsured deposits, Financial Services Forum said. 

"The FDIC and other agencies previously have recognized that not all types of uninsured deposits are equally likely to run in stress situations and have stated that operational deposits related to the clearing, custody and cash management services our member institutions provide "present less liquidity risk during a stress period" and 'are more stable than non-operational funding,'" the group said. "As a result, it seems inappropriate to impose the special assessment equally on uninsured deposits with different liquidity characteristics and risk profiles."