SACHA PFEIFFER, HOST:
When two mid-sized banks collapsed in March, the government made the decision to protect all of their depositors, no matter how much money they had in the bank. That helped discourage a more widespread panic at other banks. But the decision came with a price. It cost the nation's deposit insurance fund nearly $16 billion. Today the FDIC proposed a plan to recover that cost. And NPR's Scott Horsley is here with us to explain that plan. Hi, Scott.
SCOTT HORSLEY, BYLINE: Hi.
PFEIFFER: How does the government plan to get this money back?
HORSLEY: Well, the government said all along it's not going to hit taxpayers. Instead, the money will come from banks, which is how all deposit insurance is paid for. The FDIC does have some discretion, though, in which banks have to pay. After all, the U.S. has thousands of banks of all different sizes. And the plan announced today would let the vast majority of those banks off the hook. Banks with more than $5 billion in uninsured deposits at the end of last year would be assessed a fee proportional to those uninsured deposits. FDIC Chairman Martin Gruenberg says the nation's biggest banks would cover the lion's share of the cost.
MARTIN GRUENBERG: Defining the assessment base in this way would effectively exclude most small banks from the special assessment.
HORSLEY: And to avoid straining big banks' cash drawers, the proposed fee would be spread out over two years, with the first payment due in the middle of 2024.
PFEIFFER: Interesting. So it penalizes or targets, in a sense, the banks who are rolling the dice on carrying more deposits than they should. What happens now before these changes in mid-2024?
HORSLEY: Today's proposal kicks off a public comment period so the details could change before it's finalized. Small banks have been complaining they shouldn't have to pay for the missteps of Silicon Valley and Signature Bank. Anne Balcer, who's with the Independent Community Bankers of America, says her members are pretty happy with how this proposal came out.
ANNE BALCER: It appears to be a pretty equitable solution. Smaller banks, which tend to be more of our community banks, are going to have fewer uninsured deposits. But mega banks, the Wall Street banks, have - over 50% of their deposits are typically going to be uninsured. Those are the ones that create the broader risk to the deposit insurance fund.
HORSLEY: Even at small banks, though, around 20% of deposits may exceed...
(SOUNDBITE OF DOG BARKING)
HORSLEY: ...The cap on insurance, which is currently a quarter million dollars per account. Last week, the FDIC issued a white paper suggesting Congress might consider raising that limit, at least for certain business accounts used to make payroll or cover other expenses.
PFEIFFER: Scott, we should note, it sounds like your dog likes to talk about the FDIC, too.
(LAUGHTER)
PFEIFFER: What are the pros and cons of what you just described, this plan?
HORSLEY: Well, deposit insurance helps to limit bank runs. You know, if you know you're going to get your money back, even if your bank goes under, well, there's no reason to rush out and take the money out. So it acts like a fire extinguisher that douses sparks before they spread. It helps promote financial stability, as this episode has shown, though, backstopping deposits cost money and somebody has to bear that cost. Aaron Klein, who's a senior fellow at the Brookings Institution, worries that any additional cost banks face for deposit insurance will just be passed on to their customers, especially the customers who can least afford it.
AARON KLEIN: America's retail banking system is already a reverse Robin Hood. For the half of Americans who can always have $1,000 in their bank, they get, quote-unquote, "free checking." If you don't always have $1,000 in your bank account, you get hit with monthly maintenance fees.
HORSLEY: Another argument you hear against more deposit insurance is it makes customers indifferent if their banks engaged in risky behavior. Although a lot of customers may think it's regulators' job to police risky behavior at banks, and they just want to park their money someplace and not have to think about it.
PFEIFFER: Scott, overall, how sound is the deposit insurance fund?
HORSLEY: Well, bank customers whose deposits are insured should feel confident. Even when we've had widespread bank failures like the S&L crisis in the late '80s, depositors didn't lose money. Ultimately, the insurance fund's backed by the full faith and credit of the government. So that should be good, at least if we avoid a government default this summer.
PFEIFFER: By June 1. That's NPR's Scott Horsley. Thank you.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
