Banks want the FDIC’s big fee to fall hard

Oct 18, 2022

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The FDIC board later this morning will vote on a new rule that would raise bank fees to revive a sputtering fund that backstops American deposits. The banking lobby is pulling every lever it can to keep the agency from moving forward.

A half-dozen industry associations representing major commercial lenders like JPMorgan Chase and Bank of America as well as midsized and community-based financial institutions on Monday asserted that the FDIC relied on old data when it came up with its proposal to pump the Deposit Insurance Fund back up to its legally required minimum threshold.

They're also saying the increase — it amounts to two one-hundredths of a percentage point — would strain the economy as households and companies face mounting pressure from rising interest rates.

"I wouldn't underestimate the potential procyclical effects of this kind of dramatic increase," Bank Policy Institute General Counsel John Court said. "It just really doesn't make sense."

Congressional Republicans are leaning into the fight as well. Rep. Blaine Luetkemeyer of Missouri and four other leading GOP members of the House Financial Services Committee fired off a letter late Monday to the FDIC board's three members — Acting Chair Marty Gruenberg, Acting Comptroller of the Currency Michael Hsu and CFPB Director Rohit Chopra — urging them to resist raising FDIC fees on banks at a time when it "could pose real harm to consumers, particularly those with low and moderate incomes who may need access to credit."

If you ask Republicans and the banking lobby, the new fees aren't even necessary. BPI and other banking groups claim the fund — whose health is measured by its size as a percentage of the estimated insured deposits for all FDIC-insured banks — could return to its 1.35 percent minimum as soon as 2023.

The bare minimum might not be good enough for the FDIC.

The banking regulator set a 2 percent target for the Deposit Insurance Fund in the aftermath of the global financial crisis, and it has voted to maintain it each year since.

While the fund survived periods since 2020 when the ratio dipped below its legally required floor, the FDIC asserted in its fee proposal that bringing the fund above that 2 percent target would help it withstand a financial crisis. Indeed, the proposed hike "would remain in effect unless and until the reserve ratio meets or exceeds 2 percent," it said.

The FDIC declined comment.

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Driving the Day

The FDIC board meets at 10 a.m. … Atlanta Fed President Raphael Bostic speaks at 2 p.m. … Minneapolis Fed President Neel Kashkari speaks at 5:30 p.m.

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— Reuters's John Revill: Legacy issues "have dogged [Credit Suisse's] performance and cost it billions of dollars . The bank is also trying to recover from other missteps, including losing more than $5 billion from the collapse of investment firm Archegos last year, when it also had to suspend client funds linked to defunct financier Greensill Capital."

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Economy

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Regulatory Corner

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Crypto

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Fly Around

`Britain's Prime Minister Liz Truss apologised for 'mistakes' in her programme that caused investor confidence to evaporate and her poll ratings to plunge before nearly all of it was finally shredded on Monday, but said she would not step down." — Reuters

Xi Jinping laid out ambitious plans two years ago to expand China's wealth and double the size of the nation's economy by 2035 …. [Economists believe that] won't be achievable. — WSJ's Lingling Wei

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