US banks under pressure as corporate depositors demand higher ratesIn the wake of rising industry tension over the failure of Silicon Valley Bank and Signature Bank, US banks are making concerted efforts to contain potential damages.
Reassessing deposit data amidst controversy
The Federal Deposit Insurance Corporation (FDIC), a principal banking regulator in the US, recently expressed its concern over several US banks erroneously reducing the value of their uninsured deposits.
This claim is sparking worry as it comes on the heels of a proposal by the FDIC for a “special assessment” to address the fallout from the Silicon Valley Bank and Signature Bank collapse.
This special assessment is the primary source of tension as some banks have allegedly amended their deposit data, effectively reducing the amount they would owe.
S&P Global bank analysts noted an abnormal number of banks had adjusted their fourth-quarter financial statements, which could potentially decrease the funds due for the FDIC’s special assessment by tens, even hundreds of millions of dollars.
In a striking example, Zion, a midsize US lender, declared last week that multiple large banks had resubmitted their year-end financial statements to show lower levels of uninsured deposits.
The call for accuracy amidst financial turmoil
In response to these reports, the FDIC has urged any banks inaccurately reporting their deposit data to amend their Call Report, a financial statement required by the FDIC. The FDIC underscored the responsibility of top executives to ensure the accuracy of these reports.
This controversy has surprised industry veterans, given that the procedure for calculating insured deposits has remained unchanged for quite some time.
This startling development may be a reaction to the recent pressure on banks to minimize their reliance on uninsured deposits following the Silicon Valley and Signature bank failure.
Notably, uninsured deposits form a significant part of the calculation for the proposed special FDIC assessment to deal with this year’s bank failures.
The planned assessment is based on the value of banks’ uninsured deposits at the end of 2022, given that a significant portion of the cost associated with the SVB and Signature bailouts resulted from the coverage of accounts exceeding the FDIC’s standard $250,000 insured limit.
The FDIC did not point fingers at specific banks, and it remains to be seen which banks, if any, will need to revise their financial records.
In one such instance, Bank of America, the largest restater, reduced its uninsured deposits by almost 14%, resulting in a $310 million decrease in the bank’s special assessment.
Similarly, Huntington National Bank, which ranks 26th in the US, reported a significant 40% drop in uninsured deposits after its restatement. This adjustment potentially saves Huntington nearly $85 million, according to S&P. While the banks have stayed quiet on this issue, the ripple effects are evident.
There is a growing sentiment among midsize banks, including Zions, that the nation’s largest banks should bear the brunt of the SVB and Signature failures’ cost, given the benefits they have reaped from the recent regional banking upheaval.
A key takeaway is that while size is a significant factor in determining the costs related to these bank failures, the riskiness of different banks’ business models should not be overlooked.
This layered issue underscores the need for accurate reporting, fair assessments, and the shared responsibility of all US banks in navigating these turbulent times.
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