New York (CNN) It cost the Federal Deposit Insurance Corporation about $23 billion to clean up the mess left by Silicon Valley Bank and Signature Bank after their collapses earlier this month.
Now, as the dust clears and the US banking system stabilizes, the FDIC needs to figure out where to send its bill. While midsize and regional banks are behind the recent turmoil, it appears that the big banks may be footing the bill.
Ultimately, that means higher fees for bank customers and lower rates on their savings accounts.
What’s happening: The FDIC maintains a $128 billion deposit insurance fund to insure bank deposits and protect depositors. That fund is generally provided by quarterly payments from insured banks in the United States. But when a large and costly event occurs, such as the FDIC taking back uninsured clients at Silicon Valley Bank, the agency may assess a special charge in the banking industry to recoup the cost.
The law also gives the FDIC the authority to decide which banks bear the lion’s share of that appraisal fee. FDIC Chairman Martin Gruenberg said this week that he plans to release details of the latest assessment in May. He has also hinted that he would protect community banks from having to shell out too much money.
The fees that the FDIC imposes on banks tend to vary. Historically, they were fixed, but the 2010 Dodd-Frank law required the agency to take a bank’s size into account when setting rates. It also takes into consideration “economic conditions, industry effects and other factors the FDIC deems appropriate and relevant,” according to Gruenberg.
On Tuesday and Wednesday, members of the Senate Banking Committee and the House Financial Services Committee questioned Gruenberg about his plans to charge banks for damages caused by SVB and others, repeatedly imploring him to leave alone. to small banks.
Gruenberg was receptive.
“Will you agree to use your authority… to establish separate risk-based assessment systems for large and small members of the Deposit Insurance Fund so that these well-run banks don’t have to bail out Silicon Valley Bank?” asked US Rep. Andy Barr, a Republican representing Kentucky’s 6th District.
“I’m certainly willing to consider that,” Gruenberg responded.
“If the smaller community banks in Texas will be responsible for bailing out failed banks in California and New York?” asked US Rep. Roger Williams, a Republican representing the 25th District of Texas.
“Let me just say, without forecasting what our board will vote on, we’re going to be very sensitive to the impact on community banks,” Gruenberg responded.
Representatives Frank Lucas, John Rose, Ayanna Pressley, Dan Meuser, Nikema Williams, Zach Nunn and Andy Ogles asked similar questions and received similar responses. Like US Senators Sherrod Brown and Cynthia Lummis.
“I don’t doubt he’s still getting a lot of phone calls” from politicians pressuring him to place the charge on the big banks, former FDIC Chairman Bill Isaac told CNN.
The smaller banks say they can’t pay this bill and that they had nothing to do with the failure of “these two wild and crazy banks,” Isaac said. “They are discussing putting the assessment on the larger banks, and from what I understand, the FDIC is seriously thinking about it,” he added.
An FDIC spokesperson told CNN that the agency “will issue a proposed rulemaking for special evaluation for public comment in May 2023.” Regarding Gruenberg’s testimony, they added that “when the boss says something, we defer to the boss.”
Big banks: “We need to think hard about liquidity risk and uninsured deposit concentrations and how you assess that in terms of deposit insurance assessments,” Gruenberg told the Senate Banking Committee, noting that smaller banks that are operating with careful they might be asked to endure less of the evaluation.
A broader assessment of the big banks would add to what will already be a multi-billion dollar payout from the country’s biggest banks like JPMorgan Chase (JPM), Citigroup (C.), Bank of America (bac) and fargo wells (wfc).
The argument is that the largest US banks will be able to take on additional payments without collapsing. Those big banks also benefited greatly from the collapse of SVB and Signature Bank, as wary customers sought safety by moving billions of dollars in money to the big banks.
passing it: Regardless of who is charged, the fees will eventually be passed on to the bank’s customers in the end, Isaac said. “It will be rolled out to all customers. I have no doubt that the banks will offset these additional costs in their pricing: higher service fees, higher loan prices and less compensation for deposits.”
The average Wall Street bonus fell 26% last year
It’s tough for a Wall Street banker. Or harder than it was.
Wall Street’s average annual bonus fell to $176,700 last year, a 26% drop from the prior-year average of $240,400, according to estimates released Thursday by New York State Comptroller Thomas DiNapoli.
While that’s a big decline, the 2022 bonus figure is still more than double the median annual income for US households, reports CNN’s Jeanne Sahadi.
In total, Wall Street firms had a bonus pool of $33.7 billion for 2022, which is 21% smaller than the previous year’s record of $42.7 billion, and the biggest drop since the Great Recession. .
For New York City and New York State coffers, bonus season means a welcome infusion of income, as securities industry employees make up 5% of private sector employees in the City of New York and his salary represents 22% of the salaries of the private sector of the city. In 2021, Wall Street was estimated to be responsible for 16% of all economic activity in the city.
DiNapoli’s office projects the lower bonuses will generate $457 million less in state income tax revenue and $208 million less for the city compared to a year earlier.
More problems with Bed Bath & Beyond
The embattled retailer Bed Bath & Beyond will try to use $300 million of its shares to pay off creditors and finance its business as it fights to avoid bankruptcy. reports CNN’s Nathaniel Meyersohn.
If it can’t raise enough money from the offering, the home furnishings giant said Thursday it expects to “probably file for bankruptcy.”
Bed Bath & Beyond was able to initially avoid bankruptcy in February by completing a complex share offering that gave it both an immediate cash injection and a promise of more funds in the future to pay down its debt. That offer was backed by private equity group Hudson Bay Capital.
But on Thursday Bed Bath & Beyond said it was terminating the deal with Hudson Bay Capital for future funding and turning to the public market.
Shares of Bed Bath & Beyond fell more than 26% on Thursday. The stock was trading at around 60 cents per share.