US bank deposit data is in question amid tensions over the SVB bailout

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A top US banking regulator has accused some US lenders of misreporting deposit data at a time of jitters in the industry over how to use deposit levels to assess the cost of this year’s failures of Silicon Valley and Signature Bank.

The Federal Deposit Insurance Corporation, in an open letter to bank CEOs on Monday, said it had “noted that some depository institutions” had “incorrectly” undervalued their uninsured deposits.

The letter comes amid concerns that some banks have reworked deposit statements in ways that reduce what they might owe as part of a “special assessment” proposed by the FDIC in May after the collapse of SVB and Signature Bank.

Banking analysts at S&P Global note that an unusually large number of banks have revised their fourth-quarter financial statements to write down the value of their unsecured deposits. Analysts said reinstatements could be down by tens of millions of dollars, and in at least one case as high as $300 million, which is the amount each bank would have to pay in the FDIC’s special assessment.

Midsize US lender Zions claimed in a letter it filed last week with the FDIC that several major banks have resubmitted their year-end financial statements to report a lower level of uninsured deposits.

A Vertical Chart Showing The Fourth-Quarter Rise In Us Banks Restates The Amount Of Uninsured Deposits

The FDIC letter called on banks that incorrectly reported their deposit data to amend the so-called contact report, which is the bank’s financial data file, and reminded them that senior executives are required to sign off on the validity of these reports.

Consistent with requirements for accurate call reporting, insured financial institutions “that have incorrectly reported uninsured deposits must adjust their call reports by making appropriate changes to the data,” the FDIC wrote.

“I was surprised that this error popped up given that insured deposit account procedures had not changed in some time,” said Bert Elley, a veteran banking advisor and a close watcher for the FDIC.

Banks have been under pressure to reduce their reliance on uninsured deposits after the collapse of SVB and Signature. Moreover, uninsured deposits are an important measure in how much each bank will have to pay under the FDIC’s proposed assessment of major failures this year.

The FDIC proposed calculating the fee based on the banks’ uninsured deposits, as $15.8 billion of the $18.5 billion bailout cost of SVB and Signature was due to coverage of accounts greater than the normal FDIC limit of $250,000 insured.

The regulator wants to apply the assessment based on the value of banks’ uninsured deposits at the end of 2022. Nearly 56 percent of deposits in the US were above $250,000 per account and disclosed at the end of the first quarter, up from 52 percent three months earlier.

The FDIC did not identify any individual bank. It was not clear which, if any, banks would have to rework their financial records.

Earlier this month, Standard & Poor’s said this year 55 banks have restated their numbers for the fourth quarter, compared with just 14 in the same quarter a year earlier. S&P said the majority of the adjustments resulted in a decrease in uninsured deposits.

Bank of America had the largest reformulation, cutting its uninsured deposits by $125 billion, or roughly 14 percent, according to the report. Based on lower uninsured deposits, S&P said the special valuation for Bank of America will drop to $1.95 billion, down from $2.26 billion.

Huntington National Bank, the 26th largest bank in the United States, had the largest drop in uninsured deposits after its restatement, dropping 40 percent to just over $50 billion, according to S&P, which calculated that restatement would save Huntington nearly $85 million.

Bank of America declined to comment. It told Standard & Poor’s that its restatement concerned “in-company” deposits that should have been excluded from uninsured deposits. A source close to Bank of America told the Financial Times that the adjustment, which was made in early May, was pre-planned and not related to the FDIC’s own assessment.

Huntington did not respond to a request for comment.

Zion’s CFO Paul Bourdais told the Financial Times that the point of his letter was “not to imply or assert that any bank is ‘playing’ with the system or acting in any nefarious way”. Instead, his intent was to point out issues with the way the FDIC has proposed to enforce the rating associated with SVB.

Zions’ letter was one of more than 200 submitted to the FDIC during the 60-day comment period. Like Zions, many mid-sized banks have written letters saying that the country’s largest banks must pay the cost of the failure of SVB and Signature because they have benefited the most from the recent regional banking turmoil.

In a comment letter, the Financial Services Forum, a lobby group representing eight of the 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 latest banking crisis. The group criticized the FDIC for basing its assessment on volume rather than the risks of the banks’ different business models.

Additional reporting by Joshua Franklin in New York

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