Large banks would be required to pay more into the government fund used to cover the cost of seizing failed banks under a proposal issued by U.S. regulators Tuesday.
Bank of America, JPMorgan Chase & Co. and Citigroup combined would pay about $1 billion more annually in assessments under the new liabilities-based system, according to industry estimates.
The change, mandated by the new financial regulatory reform law enacted in July, was unanimously backed by the board of the Federal Deposit Insurance Corp.
Community banks lobbied for the change, arguing that large banks pose more of a risk to the financial system and should therefore contribute more to the fund.
The Independent Community Bankers Association estimates the proposed change would save banks with less than $10 billion in assets about $4.5 billion over the next three years.
The proposed rule will be open for public comment for 45 days and a final rule is expected in the first quarter of next year. It would go into place on April 1, meaning the change would affect what banks are charged in the second quarter of next year.
The law requires the FDIC to base the assessments it charges for its deposit insurance fund on a bank's total liabilities rather than on the amount of domestic deposits held by an institution. The result is that some large banks, those that primarily rely on funding other than from deposits, will pay more.
This type of cost increase will likely cause large banks to consider what business changes they can make to lessen this cost, said Jim Chessen, chief economist at the American Bankers Association.
"The costs are so large it drives business decisions," he said.
Large banks could, for example, decide to rely more on domestic deposits for funding since under the new system that could bring their assessment costs down, he said.
Under the proposal, the FDIC would not raise more money for the fund, which guarantees individual accounts up to $250,000, it would simply shift the burden of who pays more of the cost.
FDIC staff said large banks, those with more than $10 billion in assets, currently make up 70 percent of the assessment base and under the proposed rule they would make up 80 percent.
The FDIC has used domestic deposits as the foundation of its assessment system since 1935.
"It's a sea change in that it breaks the link between deposit insurance and deposits for the first time, so this is quite significant," acting Comptroller of the Currency John Walsh said of the new funding system.
The rule also would charge bankers' banks and custodial banks, such as State Street and Bank of New York Mellon, less on the least risky assets on their books, FDIC staff said. Both types of banks mostly serve other financial institutions rather than retail customers.
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