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Big banks try, but fail, to fool FDIC

This almost makes me laugh more than it makes me outraged. In March Silicon Valley Bank suffered a huge run because it was in trouble and most of its deposits were uninsured. So what did the rest of the banking industry do?

Reduce their level of uninsured deposits? Ha ha. Of course not. They just said they did:

Most of this bogus reporting happened at big banks that weren't in any danger of a run. So why did they do it? The Wall Street Journal tells us:

Many of the banks that changed their numbers tried to include an unusual type of account in the category of deposits insured by the FDIC. [These accounts exceeded $250,000] but the banks put collateral behind them, effectively guaranteeing the depositors would be paid back if the bank failed.

....In May, the FDIC said it would impose a special assessment on banks with more than $5 billion of total assets to cover the $15.8 billion that it cost to guarantee uninsured deposits at Silicon Valley Bank and Signature Bank after they failed in March. The assessment would be based on a bank’s uninsured deposits as of Dec. 31.

So the banks were just trying to avoid the special assessment. It's coming on December 31, so there's no time to waste trying to fool the examiners!

8 thoughts on “Big banks try, but fail, to fool FDIC

    1. KJK

      Deposits are liabilities of a bank. Most bank assets are loans to customers, which would not be legitimate collateral. Of course assets like Treasury Bonds could be collateral, but SVB didn't have a good experience with that type of asset.

      Not sure what is going on here, whether or not the restatement of insured deposits is just bank BS or an accounting treatment allowed by the FDIC rules. BofA seems to be sticking to their story, notwithstanding the FDIC warning. I think there is certainly a reduction of uninsured bank deposits after SVB, as customers have reduced their exposure. Roku had almost $500B at SVB, which was insane.

    2. ey81

      Collateralized bank deposits are generally collateralized by short-term Treasury obligations. Certain depositors, especially state and local governments, which have really huge cash amounts on hand and low risk tolerance, and are vulnerable to both political pressure and incompetence, require that their deposits be collateralized in this fashion. If you impose such a requirement, it obviously diminishes the amount of interest the bank will pay on your deposits.

      Whether such deposits should count as uninsured for purposes of the FDIC assessments is a judgment I leave to others.

    1. joey5slice

      The data appears correct based on the WSJ article, but Kevin’s line showing when SVB collapsed is obviously wrong. The point of the piece also seems to be that the assessment will be based on uninsured deposits as of 12/31/2022, so banks are revising previous filings.

  1. kahner

    interesting 1) that a bunch of banks all employed the same scheme and 2) that they thought such an obvious trick would be ignored/accepted by regulators, even in the immediate aftermath of the SV bank collapse.

  2. ddoubleday

    How else could FDIC recoup their losses? Well, how about NOT COVERING the losses that were explicitly not insured and everyone knew that?

    You can't come up with a better example of privatizing the gains and socializing the losses. Both from the perspective of the bank and the perspective of the high dollar customers.

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