Attorneys general say FDIC bailout of failed banks will harm taxpayers

(The Center Square) - Attorneys general from nine states said they oppose the Federal Deposit Insurance Corporation's proposed special assessments on 113 banks to cover two bank failures.

The FDIC announced earlier this year $15.8 billion split between the banks would cover 95% of the costs of uninsured deposits from Silicon Valley Bank and Signature Bank. The financial agency took over the two banks in March after they failed.

The plan would require the 113 banks, all of which have deposits of more than $50 million, to begin paying the special assessment in quarterly payments starting in January. The FDIC said these are "the types of banking organizations that benefited most from the protection of uninsured depositors."

The attorneys general, led by Oklahoma Attorney General Gentner Drummond, said the plan would burden the banking industry and taxpayers.

"No matter how well intentioned the Federal Government's actions may be, it cannot guarantee that 'no losses will be borne by the taxpayer,'" the attorneys general said in their letter. "The special assessment may not be directly levied against them, but those costs will ultimately be passed on to taxpayers."

The FDIC does not cover deposits over $250,000, which means the bailout will benefit wealthy investors, the attorneys general said.

"Americans living in rural Oklahoma, Idaho, Louisiana, Mississippi, South Carolina, South Dakota, Tennessee, Texas, and Utah should not be forced to pay the bill for wealthy national and foreign elites and tech investors, who are savvy enough to assume their own risks," the letter said. "Just as Main Street should not bail out Wall Street, Red River Valley should not bail out Silicon Valley."

Drummond said the FDIC's lack of oversight is partly to blame for the bank failures. In a letter sent to the FDIC shortly after the bank failures, Drummond said, "...your focus on 'climate risk' incentivizes risk managers and bank examiners to focus on items other than those that truly present existential risk to institutions and systemic risk." The letter also cited the agency's recent emphasis on diversity, equality and inclusion principles.

"The FDIC's misguided decision to prioritize left-wing political goals distracted it from its statutory mandate and core mission: providing regulatory oversight and protecting both insured deposits and the DIF (Deposit Insurance Fund)."

The comment period for the proposed rule ended Friday. The FDIC will issue a final rule before January, according to the agency.