On November 16, 2023, the Federal Deposit Insurance Corporation (FDIC) issued a final special assessment to recover the hit to the Deposit Insurance Fund. This is a result of the agency’s decision to safeguard uninsured depositors in the aftermath of the Silicon Valley Bank and Signature Bank failures. The Federal Deposit Insurance Act (FDI Act) has mandated the FDIC to take this action in connection with the systemic risk determination announced on March 12, 2023.
Scope and Effective Dates
The special assessment is applicable to insured depository institutions (IDI) with total assets of $5 billion or greater.
The final rule will become effective on April 1, 2024, with the first collection for the special assessment reflected on the invoice for the first quarterly assessment period of 2024 (i.e., January 1, 2024, through March 31, 2024) with a payment due date of June 28, 2024.
Assessment Base and Calculation
The assessment base for the special assessment is equal to an IDI’s estimated uninsured deposits reported for the quarter that ended December 31, 2022, and adjusted to exclude the first $5 billion in estimated uninsured deposits. The FDIC will collect the special assessment at a quarterly rate of 3.36 basis points, which approximates a 13.4 basis point annual rate over eight quarterly assessment periods.
The projected outcome of this assessment, as per the FDIC’s estimates, is a total revenue of $16.3 billion, which aligns with the estimated losses attributable to the protection of uninsured depositors at the two failed banks.
Accounting Guidance
The assessment will be accounted for in accordance with ASC Topic 450, Contingencies. IDIs that are required to pay an assessment will recognize the accrual of a liability and an expense from a loss contingency for the full amount of the special assessment when the institution determines that the conditions for accrual under GAAP have been met (i.e., in Q4 2023, since the trigger for recognition is publication of the final rule in the Federal Register).
Per ASC 450-20-25-2, an estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met:
- Information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset had been impaired, or a liability had been incurred at the date of the financial statements. The date of the financial statements means the end of the most recent accounting period for which financial statements are being presented. It is implicit in this condition that it must be probable that one or more future events will occur, confirming the fact of the loss.
- The amount of loss can be reasonably estimated.
The purpose of these conditions is to require accrual of losses when they are reasonably estimable and relate to the current or a prior period.
As we await the effective date of the FDIC’s special assessment, please reach out to a member of our team and we will assist you with the upcoming requirements.
