WASHINGTON–The FDIC’s chairman said a comprehensive review of the federal bank deposit insurance system, as well as a review of the supervision by the deposit insurance agency of one of the two recently failed banks, will be conducted and reported by May 1, the leader of the agency said in testimony Monday.
Testifying before the Senate Banking Committee, FDIC Chairman Martin Gruenberg said his agency will also release a proposed rulemaking in May for the special assessment to banks to cover the costs of the two failed banks, Silicon Valley Bank (SVB) in California and Signature Bank in New York.
In his testimony, Gruenberg said the review of the deposit insurance system will include policy options for consideration related to deposit insurance coverage levels, excess deposit insurance, and the implications for risk-based pricing and deposit insurance fund adequacy.
Review Being Conducted
A review of the supervision by FDIC of Signature Bank will be conducted by the agency’s chief risk officer, according to Gruenberg. Silicon Valley Bank was regulated by the Federal Reserve’s San Francisco region, with the deposit insurance from the FDIC.
The banks’ failures “demonstrate the implications that banks with assets over $100 billion can have for financial stability. The prudential regulation of these institutions merits serious attention, particularly for capital, liquidity, and interest rate risk,” Gruenberg stated. “This would include the capital treatment associated with unrealized losses in banks’ securities portfolios. Resolution plan requirements for these institutions also merit review, including a long-term debt requirement to facilitate orderly resolution.”
At Least $22 Billion in Estimated Costs
Gruenberg said the FDIC is estimating that the cost to the Deposit Insurance Fund (DIF) related to resolving the failure of SVB will be $20 billion, while the cost of resolving Signature Bank at $2.5 billion.
Of those amounts, Gruenberg told the Senate approximately 88% ($18 billion) is attributable to the cost of covering uninsured deposits at SVB, while $1.6 billion is attributable to the cost of covering uninsured deposits at Signature Bank.
“I would emphasize that these estimates are subject to significant uncertainty and are likely to change, depending on the ultimate value,” Gruenberg said.
Losses Must be Recovered
The FDIC chair told the committee that under the Federal Deposit Insurance Act, the loss to the DIF arising from the use of a systemic risk exception must be recovered from one or more special assessments on insured depository institutions, depository institution holding companies, or both, as the FDIC determines to be appropriate.
As both SVB and Signature were granted the systemic risk exceptions.
Under the FDI Act, Gruenberg said the notice of proposed rulemaking scheduled for May would address the types of entities that would “benefit from the action taken, economic conditions, the effects on the industry, and such other factors as the FDIC deems appropriate and relevant.”
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