FDIC Remarks on Recent Bank Failures – April 2023

Chairman Martin J. Gruenberg

“On March 10th, just over two weeks ago, Silicon Valley Bank (SVB), Santa Clara, California, with $209 billion in assets at year-end 2022, was closed by the California Department of Financial Protection and Innovation (CADFPI), which appointed the FDIC as receiver.

The failure of SVB, following the March 8 announcement by Silvergate Bank that it would wind down operations and voluntarily liquidate, signaled the possibility of a contagion effect on other banks.

On Sunday, March 12th, just two days after the failure of SVB, another institution, Signature Bank, New York, New York, with $110 billion in assets at year-end 2022, was closed by the New York State Department of Financial Services (NYSDFS), which also appointed the FDIC as receiver.

With other institutions experiencing stress, serious concerns arose about a broader economic spillover from these failures.

After careful analysis and deliberation, the Boards of the FDIC and the Federal Reserve voted unanimously to recommend, and the Treasury Secretary, in consultation with the President, determined that the FDIC could use emergency systemic risk authorities under the Federal Deposit Insurance Act (FDI Act) to fully protect all depositors in winding down SVB and Signature Bank.”

Vice Chair for Supervision Barr:

“Our banking system is sound and resilient, with strong capital and liquidity. The Federal Reserve, working with the Treasury Department and the Federal Deposit Insurance Corporation (FDIC), took decisive actions to protect the U.S. economy and to strengthen public confidence in our banking system.

These actions demonstrate that we are committed to ensuring that all deposits are safe. We will continue to closely monitor conditions in the banking system and are prepared to use all of our tools for any size institution, as needed, to keep the system safe and sound,” said Vice Chair for Supervision Michael S. Barr before the U.S. Senate Committee on Banking, Housing and Urban Affairs in Washington, D.C.

“At the same time, the events of the last few weeks raise questions about evolving risks and what more can and should be done so that isolated banking problems do not undermine confidence in healthy banks and threaten the stability of the banking system as a whole. At the forefront of my mind is the importance of maintaining the strength and diversity of banks of all sizes that serve communities across the country.

SVB failed because the bank’s management did not effectively manage its interest rate and liquidity risk, and the bank then suffered a devastating and unexpected run by its uninsured depositors in a period of less than 24 hours. SVB’s failure demands a thorough review of what happened, including the Federal Reserve’s oversight of the bank.

I am committed to ensuring that the Federal Reserve fully accounts for any supervisory or regulatory failings, and that we fully address what went wrong.

Our first step is to establish the facts—to take an unflinching look at the supervision and regulation of SVB before its failure. This review will be thorough and transparent, and reported to the public by May 1. The report will include confidential supervisory information, including supervisory assessments and exam material, so that the public can make its own assessment. Of course, we welcome and expect external reviews as well.”

Comment: “Whenever you have a bank failure like this, bank management clearly failed, supervisors failed, and our regulatory system failed.” Community banks don’t need to be saddled with additional “oversight

Wires received by customers are subject to an incoming wire fee. Sometimes, this fee is waived depending on the relationship.

A Regulation O “insider” wired several deposits into his account and one he holds jointly with his mother, and the fees were waived.

Is it possible to waive those fees?

The term “extension of credit” is specifically and broadly defined by Regulation O (12 CFR 215.3) and includes loan renewals, extensions of credit made via credit card advances and other transactions. A wire fee is not an “extension of credit.”

Regulation O does not address deposit accounts and related fees that are not an “extension of credit,” with the exception of overdrafts for executive officers and directors of the bank or of an affiliate.

It is worth noting that the Federal Reserve Act 12 USC 376 reads;

“No member bank shall pay to any director, officer, attorney or employee a greater rate of interest on the deposits of such director, officer, attorney or employee than that paid to other depositors on similar deposits with such member bank.”

While you can waive certain deposit fees, for example wire fees, and those waivers wouldn’t be Regulation O or 12 USC 376 violations per se, having comparable transactions that show similar waivers for non-insiders removes doubts as to loose ethics and preferential treatment of insiders.

Waiving fees is done so in accordance with your bank’s internal policies and procedures and is not based on their status as an “insider.”