Tuesday, November 5, 2024
John Court | Executive Vice President, General Counsel, Head of Regulatory Affairs & COO at BPI | Bank Policy Institute website

Call for greater transparency over FDIC actions following 2023 bank failures

Washington, D.C. – The Federal Deposit Insurance Corporation (FDIC) has provided minimal transparency regarding its financial management decisions and the imposition of a special assessment on large banks to recover costs from the spring 2023 bank failures. The Bank Policy Institute (BPI) has called for more detailed explanations in a letter sent today, urging the FDIC’s Office of Inspector General to investigate the agency's decision-making processes related to these events.

“By all accounts, the resolutions of SVB and Signature Bank went very badly, but at this point we have only partial accounts. If future resolutions are to be handled competently, the public needs to know what happened in these cases, and a better process needs to be found. The banking industry has a vested interest in the outcome, as it pays the bills for the FDIC’s shortcomings, but the public too should know what happened,” said Greg Baer, BPI President and CEO.

In response to the failures of Silicon Valley Bank (SVB) and Signature Bank in spring 2023, the FDIC invoked the “systemic risk exception,” allowing regulators to intervene to prevent widespread contagion within the financial system. Consequently, billions of dollars in costs were incurred by the Deposit Insurance Fund and must now be recouped through a special assessment on banks.

Despite maintaining stability during last year’s turmoil, large U.S. banks have borne most of this assessment burden. According to BPI, this was finalized prematurely without sufficient explanation from FDIC regarding their policy choices. Additionally, there was an estimated 25 percent increase in assessment costs shortly after adoption.

The special assessment rule exempts banks with assets under $5 billion from paying any fees—a threshold deemed arbitrary by critics due to its lack of sound rationale.

BPI argues that FDIC’s policy explanations do not meet procedural obligations under the Administrative Procedure Act. They also highlight issues such as failure to differentiate between types of uninsured deposits when imposing costs based on banks’ uninsured deposit bases and reliance on expensive penalty-rate discount window loans.

Non-disclosure agreements and general lack of transparency further obscure public scrutiny into potential mismanagement within FDIC policymaking processes.

The unexplained decisions may have unnecessarily increased costs by billions of dollars—a failure attributed by BPI as poor governance practice which demands urgent investigation by OIG into both special assessments administration post-2023 failures along with ongoing management practices around bank receiverships making findings publicly accessible thereafter ensuring better future systemic risk event responses marked improved transparency levels overall benefitting broader stakeholder community including public interests alike thus avoiding similar pitfalls ahead leveraging existing expertise via standing advisory panels wherever feasible while remaining open towards additional reforms emerging thorough investigations conducted therein addressing core concerns effectively mitigating avoidable losses subsequently restoring confidence moving forward collectively engaging constructive dialogue among relevant parties involved ultimately fostering robust resilient financial ecosystem conducive sustained growth development amidst evolving regulatory landscape globally interconnected markets today tomorrow beyond.

For further information or inquiries contact Tara Payne at tara.payne@bpi.com.

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