‘No Material Impact’ on FDIC’s Fund from SVB, Signature Collapse

The Deposit Insurance Fund is still on track to meet a funding restoration plan, despite huge losses from recent bank failures, according to the Federal Deposit Insurance Corporation (FDIC).

The collapse of Silicon Valley Bank and of Signature Bank last month cost the fund $22.5 billion, the FDIC said, $19.2 billion of which was due to the decision to protect uninsured deposits at the two banks through the Systemic Risk Exception.

Despite this, the FDIC said most of this loss would be covered by a “special assessment” on banks — essentially a new levy on the industry — with just $3.3 billion directly hitting the Deposit Insurance Fund.

This loss was “not expected to have a material effect” on the timeline for the fund reaching a value equal to 1.35% of total insured deposits, as required by federal law, the FDIC said.

The FDIC was forced to set out a plan for increasing the size of the Deposit Insurance Fund as it had fallen below the 1.35% threshold due to “extraordinary deposit growth” in the first half of 2020. It aims to hit the 1.35% mark by September 15, 2028, and FDIC chairman Martin Gruenberg said it was ahead of schedule.

The special assessment terms will be consulted on in May, Gruenberg said.

“The bottom line to [this] update is that even with increased uncertainty in the banking industry and the recent failure of two large banks, staff project that the losses from the two failures are not expected to have a material effect on the projected timeline for reaching the statutory minimum reserve ratio of 1.35%,” he said.

“The reserve ratio is expected to reach the minimum ahead of the statutory deadline of September 30, 2028, and staff recommend no changes to the Amended Restoration Plan at this time.”