Big Banks Could Get Pinched With Deposit Insurance Costs
Mega-banks will have to pay more for U.S. deposit insurance under a new regulation set for final approval on Monday as the government advances a boatload of financial oversight changes.
Other measures to be considered this week include curbing bonus plans at banks that encourage too much risk-taking, and limiting the role of much-maligned credit ratings.
A congressional committee will also weigh the funding needs of the Commodity Futures Trading Commission.
The White House was also expected to release next week proposals for fixing the housing finance system and the government-sponsored companies at its heart, Fannie Mae and Freddie Mac.
On Monday, the Federal Deposit Insurance Corp was expected to approve a rule mandated by the Dodd-Frank reforms, enacted in July after the 2007-2009 financial crisis that led to huge taxpayer bailouts of the nation's largest financial firms.
Bank of America, JPMorgan Chase and Citigroup combined would have to pay about $1 billion more per year under the new, liabilities-based FDIC insurance fund assessment formula, according to industry estimates.
Approval of the rule would shift some of the burden for maintaining the FDIC's deposit insurance fund off of smaller banks, which mostly rode out the crisis unscathed, and onto large institutions that received massive government aid.
Community banks lobbied for the change, arguing large banks pose more risk to the financial system and so should contribute more to the fund. The Independent Community Bankers Association estimated the change would save banks with less than $10 billion in assets about $4.5 billion over three years.
If approved, the rule would take effect on April 1, hitting the big banks' second-quarter results.
Citigroup Chief Financial Officer John Gerspach told analysts last month that the FDIC assessment change was shaping up as the single largest impact from Dodd-Frank on the bank.
Dodd-Frank also called for banning incentive-based pay plans at banks that promote excessive risk-taking by executives. The FDIC will consider a proposal on the rule, which could force some firms to defer some executives' pay.
The proposed rule will require executives at the largest financial institutions to have half of their bonuses deferred for at least three years, according to two people familiar with proposal.
The proposal applies to top executives at financial companies with $50 billion or more in assets such as Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co (NYSE:JPM), Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS) .
On Wednesday, the Securities and Exchange Commission is slated to take up a Dodd-Frank provision with major impact for the Big Three credit rating agencies -- Moody's Corp, Standard & Poor's and Fitch Ratings.
The legislation called for federal agencies to sharply reduce their reliance on credit ratings, widely seen as flawed in the run-up to the financial crisis. The SEC will discuss whether to propose a rule along these lines.
The U.S. House of Representatives Agriculture Committee will hold a hearing on Thursday on funding for the CFTC, which must implement dozens of new Dodd-Frank regulations and needs more staff and resources to handle the job.
Some House Republicans want to restrain spending at the SEC and the CFTC, partly to combat the federal budget deficit and partly to undermine the Dodd-Frank reforms that were opposed last year by most Republicans.