Tag Archives: FDIC

Paradigm change? New FDIC approach focuses on GSIBs

In a joint press release with other regulators, the FDIC on April 2 indicated it plans to focus rules protecting against system failures on large institutions —

“Global systemically important bank holding companies, or GSIBs, are the largest and most complex banking organizations and are required to issue debt with certain features under the Board’s ‘total loss-absorbing capacity,’ or TLAC, rule. That debt would be used to recapitalize the holding company during bankruptcy or resolution if it were to fail.

“To discourage GSIBs and “advanced approaches” banking organizations—generally, firms that have $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure from purchasing large amounts of TLAC debt, the proposal would require such banking organizations to hold additional capital against substantial holdings of TLAC debt. This would reduce interconnectedness between large banking organizations and, if a GSIB were to fail, reduce the impact on the financial system from that failure.”

It’s taken awhile, but federal regulators seem to be catching up with the work of economists and other scholars who realize the dangers of industry concentration — and the benefits of a healthy community banking sector. See, for example, last year’s important Federal Reserve study on the impact of bank size on system risk.

Spring break: Small banks near premium-relief threshold

   AFTER PAYING HIGHER deposit insurance assessment fees since the 2008-2009 big=bank bailout and Dodd-Frank legislation, community banks may soon be getting a break.

   The FDIC’s Deposit Insurance Fund ratio of reserves to insured deposits is nearing a threshold that wouldtrigger a reprieve from paying assessment fees for institutions with less than $10 billion of assets.

It’s unclear how many banks will find the result financially material enough to improve earnings. For most banks, the premiums constitute less than 5 percent of revenues. But for others, they exceed that level.

Moreover, each bank gets a chance to decide how it will use the extra funds — so even if the reduction doesn’t go immediately to the bottom line, it may be used for capital expenditures such as improved technological services.