WASHINGTON–The nation’s big banks, facing an assessment from the FDIC to replenish the deposit insurance fund following several bank failures have been testing what one report is calling a “clever gambit”: Paying billions of dollars they collectively owe to replenish the fund by using Treasurys instead of cash.
“The idea—floated to regulators and lawmakers by PNC Financial Services Group and supported by others—could allow banks to take securities that are currently worth, say, 90 cents on the dollar, and give them to the Federal Deposit Insurance Corp. at full price,” the Wall Street Journal reported. “That would effectively shift losses clogging the banks’ balance sheets to the FDIC, according to people familiar with the proposal.”
An FDIC spokesperson told the Journal the agency's rules don't allow banks to pay it in Treasurys, but the FDIC does welcome public comment on its rules. The FDIC is soliciting public comment on the proposal for about two months.
Truist Financial has also explored the idea of paying its special assessments with Treasurys, people familiar with the proposal told the Journal. Spokespersons for PNC and Truist declined to comment, the Journal said.
‘Could Change Its Rules’
“Proponents say nothing in the law says FDIC fees have to be paid in cash, so the agency could change its rules,” the Journal said. “They say the move, if greenlighted by the FDIC, would help the banking system address the way rising rates over the past year have saddled lenders with billions in losses on their portfolios of bonds. Those losses helped sink Silicon Valley Bank in March, sparking turmoil across the banking sector.
“Paying with Treasurys also would give banks a modest break on their special assessment, if they can get face value for bonds that have declined about 10%,” the Journal report continued. “Supporters say the government would hold the securities until maturity, allowing them to recover principal and interest on the debt. The government would suffer no losses, they say.”