All Things FinReg


The Federal Deposit Insurance Corporation (FDIC) continued the focus shown over the last several months, and especially since the March 2023 failure of Silicon Valley Bank (SVB) and associated events, by the federal banking agencies on uninsured deposits when it issued a Financial Institution Letter (FIL), Estimated Uninsured Deposits Reporting Expectations, on July 24, 2023.

While not necessarily expressing new positions or imposing new requirements, in the FIL the FDIC clarified its expectations of how insured depository institutions (IDIs) should report uninsured deposits and noted that some IDIs are not reporting estimated uninsured deposits in accordance with instructions for the Consolidated Reports of Condition and Income (Call Reports).

Reiterating that IDIs must report a reasonable estimate of their uninsured deposits, the FIL notes that some institutions have “incorrectly reduced the amount reported to the extent that the uninsured deposits are collateralized by pledged assets,” which is an error because “the existence of collateral has no bearing on the portion of a deposit that is covered by federal deposit insurance.”

The FIL also states that “some institutions incorrectly reduced the amount reported on Schedule RC-O by excluding intercompany deposit balances of subsidiaries.” Accordingly, the FIL reminds IDIs that not only must Call Reports be attested to by the chief financial officer and multiple directors of an IDI, but also any incorrect Call Reports must be amended. This seems to be a straightforward admonition by the FDIC that it expects a number of IDIs to amend their Call Reports to comport with the FDIC’s position on when and how to report amounts of uninsured deposits.

The FDIC’s FIL comes in the wake of increased scrutiny by the federal banking agencies (i.e., the FDIC, the Board of Governors of the Federal Reserve System (the Federal Reserve), and the Office of the Comptroller of the Currency) on both the amount of uninsured deposits at banking organizations and associated effects.

Following the failure and receivership of SVB and Signature Bank in March 2023—where the failure of these banks was linked to the high level and concentration of their uninsured deposits—uninsured deposits have increasingly become a focal point for regulators, as evidenced in the publication of possible options for deposit insurance reform as well as the FDIC’s proposed special fee assessment for certain IDIs (i.e., a proposed special assessment of 12.5 basis points on the amount of uninsured deposits exceeding $5 billion held by banks with $5 billion or more of total assets).

The proposed fee assessment, which was required after the so-called “systemic risk exception” was invoked on March 12, 2023 in connection with the failures of SVB and Signature Bank, is designed to help replenish the FDIC’s deposit insurance fund.

The FDIC is not the only federal banking regulator that has expressed concern over uninsured deposits—for instance, Federal Reserve Vice Chair for Supervision Michael Barr has previously cited the risks associated with uninsured deposits when he suggested that “[l]iquidity requirements and models used by both banks and supervisors should better capture the liquidity risk of a firm’s uninsured deposit base.”

In the coming weeks and months, we expect the federal banking agencies will remain focused on uninsured deposits. For instance, we expect that the Federal Reserve will likely keep uninsured deposits in mind as part of proposing any long-term debt requirements or similar resolution-related requirements for all large banking organizations.

We also believe that the Federal Reserve may have in mind risks posed by uninsured deposits (especially risks related to liquidity) as part of any “re-tailoring” it may propose to the current enhanced prudential standards framework under Regulation YY, and banking organizations can also reasonably expect supervisory stress tests, and supervisors in general, to reflect this regulatory focus on risks posed by uninsured deposits.