The largest banks in the United States will have to face an extra bill after the intervention of the authorities in the failed Silicon Valley Bank and Signature Bank. The country’s Deposit Guarantee Fund (DIF) needs to be replenished, and the authorities have decided to charge a fee created ad hoc for it. Although the US law only contemplates, in principle, guaranteeing a maximum of 250,000 dollars for each bank account, the emergency decision that was made to cover all the money deposited in the banks that failed to avoid contagion to the rest of the economy had a cost. of about 15.8 billion dollars.
Although it was already known that it would be precisely the big banks that would have to pay to maintain the fund, this Thursday more details about what exactly the movement will consist of. The FDIC, the agency in charge of guaranteeing deposits, has explained that banks with more than 50,000 million dollars in assets will face 95% of the total cost, while those with less than 5,000 million will not have to contribute anything . Thus, the agency projects that 113 banks out of a total of more than 1,000 are the ones that must pay.
The extraordinary contribution will be made through eight quarterly payments starting in 2024. The president of the FDIC, Martin Gruenberg, explained that if banks assumed the expense all at once, it would mean an average reduction of 17.5% in their profits of a quarter.
Although the plan still needs the votes of the FDIC leadership to go ahead and could have modifications in the coming months, the agency has made it clear that the big banks will be the most affected in any case. According to Bloomberg, the smaller financial entities have been pressing hard to avoid having to contribute money in these extraordinary payments that are added to those that all banks contribute to the DIF every quarter.
In addition to the extraordinary payment due to the redemption of deposits after the failure of Silicon Valley Bank and Signature Bank, the FDIC is preparing a differentiated increase in the regular fees it receives from banks in order to cover the expense that it has generated the last to be intervened, the First Republic Bank.
“Years of supervision failures”
This Thursday the financial services subcommittee of the United States House of Representatives also met. Led by Chairman Bill Huizenga, it has held a hearing titled “Oversight of Silicon Valley Bank and Signature Bank”. In it, Huizenga has charged harshly against the supervisors, giving a good example of the political battle that has unleashed the banking storm.
“While regulators try to paint a picture that is different from reality, the facts are there. The collapse of Silicon Valley Bank and Signature Bank was the result of risky business strategies and years of failure by supervisors. The unstable deposits that were so important to these entities were already identified in 2019 by the FDIC itself. In the years leading up to its collapse, both the Federal Reserve and the FDIC identified management risks that were not addressed. That mistake has been expensive,” says Huizenga.
The chairman of the subcommittee ended by reflecting on the use of exceptional tools in the latest banking crises. “The use of exceptional measures has the downside that it can weaken the incentives of market participants to act correctly,” he warns.
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