Deposit insurance

The failures of several midsize banks last year demonstrated shortcomings in the deposit insurance framework and lit a fire among policymakers to take it on. But for some reason that fire went out.

The FDIC launched a campaign Wednesday to educate the public about the importance of deposit insurance, a move designed to counter lingering concerns arising from this spring's bank failures and the resurgence of imitation banks.

Federal Deposit Insurance Corp. Chairman Martin Gruenberg said despite earlier proposals for reforming deposit insurance following this spring's bank failures, congressional interest in major reforms has waned and prospects for legislative changes are dim.

The private equity firm GTCR's large investment in R&T Deposit Solutions is a sign of the windfall reciprocal deposit networks are reaping after the bank runs this spring that was driven by customers with large, mostly uninsured deposits.

The Federal Deposit Insurance Corp. issued a cease-and-desist order to Unbanked, Inc. — a cryptocurrency-focused nonbank — for making false claims about FDIC deposit insurance coverage on its crypto-related products Friday.

Sen. Elizabeth Warren, D-Mass., and Rep. Katie Porter, D-Calif., said that the Federal Deposit Insurance Corp. could do more to penalize banks that have downwardly revised their uninsured deposits as the agency looks to collect its special assessment.

Dream First Bank of Syracuse, Kan. is assuming all deposits and most of the assets of Heartland Tri-State Bank of Elkhart, Kan. following a purchase and assumption agreement with the Federal Deposit Insurance Corp., representing a $54.2 million hit to the Deposit Insurance Fund.

Both Senate Banking Committee Chairman Sherrod Brown, D-Ohio, and ranking member Tim Scott, R-S.C., said they would consider what reforms "if any" are necessary post Silicon Valley Bank failure.

The Federal Deposit Insurance Corp. board voted 3-2 to propose a special assessment of 0.125% on banks with uninsured deposits over $5 billion.

The FDIC's recent proposal to provide business accounts targeted deposit insurance coverage up to ten times the current rate is gaining traction among industry experts. But a great deal rests on the details, and any reform will probably have to wait until after 2024.

The resolutions of Silicon Valley Bank, Signature Bank and now First Republic are likely to drain $35 billion from the Deposit Insurance Fund. Odds are increasing that banks — even small ones — will pay higher premiums and perhaps a special assessment to replenish the fund.

The FDIC seems poised to let small banks off the hook for replenishing the deposit insurance fund after Silicon Valley Bank and Signature Bank's failures last month. But regulators should remember that small banks can still pose systemic risks.

The Federal Deposit Insurance Corp. said it will propose a special assessment to cover losses from Silicon Valley Bank and Signature Bank in May, and noted that bank deposit outflows are largely uninsured.

Treasury Secretary Janet Yellen's latest remarks reaffirming the government's willingness to shore up uninsured deposits at troubled banks seem to have calmed markets, but sooner or later regulators are going to have to articulate an official policy.

Depositors' trust in their banks — and banks' trust in their customers — is the cornerstone of finance. The demise of Silvergate, Silicon Valley and Signature has demonstrated how fragile that trust can be, and how difficult it will be for regulators and bankers to win it back.

Regulators covered Silicon Valley Bank and Signature Bank customers' money, and will need to replenish the Deposit Insurance Fund with higher assessments. But smaller banks don't want to pay for larger banks' mistakes.

Banks lowered their loss provisions at the end of 2020, a sign they feel better about this year than last year, according to data from the FDIC. But loan balances fell for the second straight quarter and the annual loan growth rate was the lowest in seven years.

Todd Harper, chairman of the National Credit Union Administration, said new assessments are likely needed because of an influx of deposits, but industry groups and other board members say the agency should wait to see if the reserve ratio recovers on its own.

Figure Technologies would only accept uninsured deposits, so it would not be subject to Fed or FDIC oversight. A major concern for banks is that the effort could open the door to incursions by bigger tech companies.

If the deal is approved, the $6.4 million-asset credit union would drop its federal share insurance upon joining Towpath Credit Union.