Banks want the FDIC’s big fee to fall hard

From: POLITICO's Morning Money - Tuesday Oct 18,2022 12:01 pm
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By Sam Sutton

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The FDIC board later this morning will vote on a new rule that would raise bank fees to revive a sputtering fund that backstops American deposits. The banking lobby is pulling every lever it can to keep the agency from moving forward.

A half-dozen industry associations representing major commercial lenders like JPMorgan Chase and Bank of America as well as midsized and community-based financial institutions on Monday asserted that the FDIC relied on old data when it came up with its proposal to pump the Deposit Insurance Fund back up to its legally required minimum threshold.

They’re also saying the increase — it amounts to two one-hundredths of a percentage point — would strain the economy as households and companies face mounting pressure from rising interest rates.

“I wouldn't underestimate the potential procyclical effects of this kind of dramatic increase,” Bank Policy Institute General Counsel John Court said. “It just really doesn't make sense.”

Congressional Republicans are leaning into the fight as well. Rep. Blaine Luetkemeyer of Missouri and four other leading GOP members of the House Financial Services Committee fired off a letter late Monday to the FDIC board’s three members — Acting Chair Marty Gruenberg, Acting Comptroller of the Currency Michael Hsu and CFPB Director Rohit Chopra — urging them to resist raising FDIC fees on banks at a time when it “could pose real harm to consumers, particularly those with low and moderate incomes who may need access to credit.”

If you ask Republicans and the banking lobby, the new fees aren’t even necessary. BPI and other banking groups claim the fund — whose health is measured by its size as a percentage of the estimated insured deposits for all FDIC-insured banks — could return to its 1.35 percent minimum as soon as 2023.

The bare minimum might not be good enough for the FDIC.

The banking regulator set a 2 percent target for the Deposit Insurance Fund in the aftermath of the global financial crisis, and it has voted to maintain it each year since.

While the fund survived periods since 2020 when the ratio dipped below its legally required floor, the FDIC asserted in its fee proposal that bringing the fund above that 2 percent target would help it withstand a financial crisis. Indeed, the proposed hike “would remain in effect unless and until the reserve ratio meets or exceeds 2 percent,” it said.

The FDIC declined comment.

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Driving the Day

The FDIC board meets at 10 a.m. … Atlanta Fed President Raphael Bostic speaks at 2 p.m. … Minneapolis Fed President Neel Kashkari speaks at 5:30 p.m.

BIG SHAKEUP AT GOLDMAN — WSJ’s Justin Baer: “Goldman Sachs Group Inc. plans to fold its biggest businesses into three divisions, undertaking one of the biggest reshuffles in the Wall Street firm’s history … The reorganization is the latest step in Chief Executive David Solomon’s push to shift Goldman’s center of gravity toward businesses that generate steady fees in any environment. It also reflects the firm’s struggle to overcome skepticism, from investors and even among some of its own executives, over its ambitions for consumer banking.”

DON’T CRYPTO BROS LOVE AUSTIN? — From Sam: “The Texas State Securities Board is investigating crypto exchange FTX and its billionaire founder Sam Bankman-Fried for violating state securities laws , in a potential regulatory headache as the company lobbies for new digital asset rules.”

THIS TIME, TRENTON TAKES — Our Matt Friedman: “The banking giant Credit Suisse has agreed to a nearly half-billion dollar settlement with New Jersey over ‘toxic’ mortgage-backed securities it sold in the lead-up to the 2008 financial crisis , ending a nearly decadelong case that had been expected to go to trial soon.”

— Reuters’s John Revill: Legacy issues “have dogged [Credit Suisse’s] performance and cost it billions of dollars . The bank is also trying to recover from other missteps, including losing more than $5 billion from the collapse of investment firm Archegos last year, when it also had to suspend client funds linked to defunct financier Greensill Capital.”

YE’S PARLER GAMES — Our Kelly Hooper: “Kanye West is in the process of acquiring the conservative social platform Parler .”

— Our Meridith McGraw: “Former President Donald Trump spoke with Kanye West over the phone following the rapper’s decision to buy his own social media platform, a person familiar with the call told POLITICO.”

Economy

WON’T BELIEVE IT TIL THERE’S A NYT NEEDLE — Bloomberg’s Josh Wingrove: “A US recession is effectively certain in the next 12 months in new Bloomberg Economics model projections, a blow to President Joe Biden’s economic messaging ahead of the November midterms.”

NOW CONSIDER WHAT A RECESSION DOES TO 401(k)s — NYT’s Lydia DePillis: “Last year, the poverty rate for those 65 or older increased, even as it sank for everyone else. The uptick offers new evidence that elderly people haven’t fared as well as younger generations in recent years, and some experts worry that it may signal a broader setback in the financial security of those past their prime working years.”

MUNICIPAL BANKRUPTCY — Bloomberg’s Hadriana Lowenkron: “Decade after decade, Chester, Pennsylvania, has fallen deeper and deeper into a downward financial spiral … Now, with its police pension set to run out of cash in months, a state-appointed receiver is considering a last resort that cities rarely take : filing for bankruptcy.”

Regulatory Corner

THERE’S ANOTHER DURBIN CARD BILL PENDING— WSJ’s AnnaMaria Andriotis: “The Federal Trade Commission is investigating whether Visa Inc. and Mastercard Inc.’s security tokens restrict debit-card routing competition on online payments.”

Crypto

BINANCE — Reuters’s Tom Wilson and Angus Berwick: “In 2018, [Binance CEO Changpeng] Zhao approved a plan by lieutenants to ‘insulate’ Binance from scrutiny by U.S. authorities by setting up a new American exchange … In public, Zhao said the new U.S. exchange — called Binance.US — was a ‘fully independent entity.’ In reality, Zhao controlled Binance.US, directing its management from abroad , according to regulatory filings from 2020, company messages and interviews with former team members.”

GAMERS USUALLY WIN Bloomberg’s Brian Feldman: “For the better part of the past year and a half, a whole lot of people in the games business thought NFTs sounded great … Yet it’s been avid gamers, many of whom regularly pay extra for flashy in-game outfits that do nothing besides look cool, who have most clearly rejected efforts to push NFTs on them.”

 

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Fly Around

`Britain's Prime Minister Liz Truss apologised for ‘mistakes’ in her programme that caused investor confidence to evaporate and her poll ratings to plunge before nearly all of it was finally shredded on Monday, but said she would not step down.” — Reuters

Xi Jinping laid out ambitious plans two years ago to expand China’s wealth and double the size of the nation’s economy by 2035 …. [Economists believe that] won’t be achievable. — WSJ’s Lingling Wei

 

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