FDIC and its special assessment

The FDIC board moved last Thursday to settle a multibillion-dollar question: should it create a special assessment to repair losses that it incurred because it has been backstopping uninsured depositors in recent regional bank failures?

The FDIC keeps telling us that it is rescuing bank customers, not bank managements. Well and good -- but it is doing so by ignoring the insurance limits, which have always seemed to be an important component of the system that brought the FDIC into existence. A bank customer with more than the insured amount in a bank account is not a very sympathetic figure.

In the recent bank turmoil, this decision to ignore [one cannot say "this ignorance" -- the FDIC official know how the insurance system works!] created a $23 billion hole in the agency’s deposit insurance fund. By law, those losses need to be filled through a fee levied on banks. So the real question last Thursday morning was: How much is enough? There was of course intense lobbying on this point.

For how that worked out, see here: https://www.americanbanker.com/news/fdic-proposes-special-assessment-to-replenish-deposit-insurance-fund

This special assessment ended up as a levy of 0.125% on bank's uninsured deposits OVER $5 billion. That sounds absurd for a number of reasons, but ... such is the life we have chosen.

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