US FDIC Urges Banks to Rectify 'Inaccurate' Statements

The U.S. Federal Deposit Insurance Corporation (FDIC) has issued a call to banks and instructed them to amend their clients' financial statements that were classified as "incorrect" in light of the reductions in insured deposits. This is ahead of a particular fee, which is linked to the value of these deposits. This could affect large companies, leaving the banks liable for billions of dollars.

The Impending Special Fee

The FDIC announced the proposal for a special fee in May to recoup losses incurred due to the bankruptcy of financial institutions such as Silicon Valley Bank and others. The fee will mostly target major companies. Its determination will be based on the worth of their non-insured deposit accounts as of the close of 2022.

Banks' Non-Compliance

The FDIC found that a handful of banks needed to follow the rules for reporting and correctly estimate the amount of uninsured deposits. But, the regulator didn't specify the banks that were responsible for this inaccuracy. It was a concern that banks were changing their depositors' amounts who were not insured prior to the 2022 end date.

Explanations for Restatements

An analysis by S&P Global on July 6 found that 55 banks had revised their uninsured deposit accounts for the fourth quarter in FDIC reports, showing more than the typical rate. The FDIC warned banks to report non-insured deposits that are secured by pledged assets as well as the ones held by their affiliates. The agency warned that any untrue reduction of uninsured deposits reported, like the omission of the balances in intercompany deposits of subsidiaries or collateralizing of deposit accounts by pledged assets, will constitute inaccurate reports.

Bank Responses and Revisions

Zions Bancorporation (ZION.O) Chief Financial Officer Paul Burgess voiced his critique of the FDIC's strategy in a letter of comment on the 17th of July. In the meantime, Bank of America (BAC.N) modified its deposits that were not insured, which were submitted to the FDIC down in May by 13.8 per cent, in the amount of $783.92 billion. The revision was made to remove bank accounts that are not insured as deposits, according to the S&P report. A Bank of America spokesperson, Bill Halldin, confirmed the corrective measure, pointing out that some intra-bank or internal accounts were incorrectly reported. But, the bank is planning to keep the most recent numbers reported.

The S&P Global report also highlighted the fact that Huntington National Bank reduced its non-insured deposit by 39.9 per cent in its latest restoration, which was the largest decrease in percentage among the banks that were analyzed. However, the bank's representatives could not respond to inquiries for comments on the issue.

complaints from larger firms

Larger companies expressed their worries concerning the proposed fee in letters of comment to the FDIC in the month of April. They claimed that the new cost would be unfairly impacting their business and claimed that they didn't benefit from the efforts of the government to protect depositors from small lenders. In a July 21st in which the Bank Policy Institute, representing large banks, criticized the FDIC's reasoning behind the special assessment process, noting that the methodology was not backed by evidence.

The FDIC demands banks correct false statements and has a proposal of a special fee. In the near future, banks are facing a highly challenging time of monitoring and compliance. The result of this issue is likely to have an impact on individual banks and the financial stability of the sector.