US banks are rushing financial restructuring to reduce Silicon Valley Bank’s liabilities

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The biggest US banks are rushing to restructure their financials to reduce the amount they may have to pay to cover the costs of this year’s failures of Silicon Valley Bank and Signature Bank.

In a letter to the Federal Deposit Insurance Corporation, mid-sized US lender Zions alleged that several major banks have begun refiling their year-end financial statements to report lower levels of uninsured deposits.

According to a separate report, the recast could save some banks hundreds of millions of dollars and up to $300 million in one go.

The FDIC routinely assesses banks with a fee for providing deposit insurance, but in May, it proposed a special assessment for major failures this year.

The fee was calculated based on the banks’ uninsured deposits, as $15.8 billion of the $18.5 billion cost of the SVB and Signature bailout was due to coverage of accounts larger than the FDIC’s usual $250,000 insured limit. Most of these accounts were in big banks.

The corporation wanted to introduce a valuation based on the value of uninsured deposits of banks at the end of 2022. About 55 percent of deposits in the US are above the $250,000 per account limit and are not covered. The comment period on the proposal ended on Friday.

“Some large banks have already begun revising their year-end call reports to reduce their reported uninsured deposits,” Zion wrote in a letter submitted to the regulator. The Call Report is a quarterly filing by banks to the FDIC.

The letter was dated July 17 and was signed by the bank’s chief financial officer, Paul Burdis. This indicates that depending on the way the proposal is worded, if the estimates for uninsured deposits are restated before finalizing the valuation, they may reduce the amount the bank will pay.

It warns, “Given the proposed use, additional guidance and standards are needed to improve consistency in the reporting of these estimates.”

In the past six months, an unusually large number of banks had restored their uninsured deposits from the end of last year, analysts at S&P Global said in a report. S&P said 55 banks restated their fourth-quarter numbers this year, compared to only 14 in the same quarter last year. S&P said most of the restatements resulted in lower uninsured deposits.

According to the report, Bank of America made the biggest restatement, cutting its uninsured deposits by $125 billion, or about 14 percent. Based on its lower uninsured deposits, S&P said BofA’s special valuation would drop from $2.26bn to $1.95bn.

The largest percentage drop in uninsured deposits following the restatement was at Huntington National Bank, the 26th largest bank in the US, falling nearly 40 percent to more than $50 billion, according to S&P, which calculated that the restatement would save Huntington about $85 million.

BofA declined to comment. It told S&P that it had mischaracterized some of the bank’s own cash as customer deposits, resulting in a restatement. A source close to BofA told the Financial Times that the restatement was done in early May, days before the FDIC released the framework for its proposed valuation.

Huntington did not respond to a request for comment.

Zion’s CFO Burdis told the FT that the purpose of his letter was “not to say or claim that anyone is messing with the bank system or acting in any nefarious way”. Rather, it was intended to point out problems related to the way the FDIC implemented SVB-related assessments, he said.

Zions’ letter was one of more than 200 letters submitted to the FDIC during a 60-day comment period. Like Zions, several mid-sized banks wrote the letter saying that the country’s largest banks should pay the price for the failures of SVB and Signature Bank as they had benefited the most from the recent regional banking turmoil.

In a comment paper, the Financial Services Forum, a lobby group representing the eight largest US banks including JPMorgan Chase and BofA, said they were already subject to the highest costs of regulation and “served as a source of strength and resilience” during the recent banking crisis. The group criticized the FDIC for basing its evaluation on the size rather than the riskiness of the business models of various banks.

The FDIC has said its assessment will affect 113 large banks and ensure that 95 percent of the costs of recent bank failures will be covered by institutions with $50 billion or more in assets. Zions has about $90 billion in assets and has to pay. Banks with less than $5 billion in assets will not have to pay any fee.

The FDIC now has to decide whether to revise its proposed fee or proceed. It previously said it had no plans to start collecting the special assessment until early next year.

Additional reporting by Joshua Franklin in New York