Proposed rule disastrous consequence of mishandled bank failures

Boise, ID – Attorney General Raúl Labrador has joined a coalition of nine attorneys general urging the Federal Deposit Insurance Corporation (FDIC) to reverse course on its proposed rule to impose a special assessment on banking organizations. The would-be rule is an effort to recover the costs of bailing out elite depositors like venture capitalists and foreign nationals at Silicon Valley Bank (SVB) and Signature Bank.

The coalition of attorneys general said the federal government’s decision to invoke the systemic risk exception of the Federal Deposit Insurance Act for the bailout was arbitrary and reckless.

“The federal government’s decision to bail out uninsured depositors was unprecedented, arbitrary, and haphazard. This decision by the FDIC will have a particular impact on community banks as consumers will now believe their money is safer at larger banks. The FDIC must reverse course or ensure the costs of this bailout are borne by the firms benefitting from the bailout,” Attorney General Labrador said.

“The banking industry and the public at-large should not be forced to subsidize the federal government’s own mishandling of a crisis of their creation,” the letter sent July 21 to FDIC Chairman Martin Gruenberg stated. “It is fundamentally unfair to pass on special assessment costs to other banking institutions who engaged in responsible business practices, unlike SVB and Signature.”

The coalition noted that the assessment would ultimately be paid by average Americans. The attorneys general are urging the federal government to re-evaluate its actions and correct course to improve the baking industry moving forward. If the FDIC is unwilling to reverse course, Attorney General Labrador said, at a minimum, the special assessment should be shouldered only by the firms and entities directly responsible for, or benefitting from, the bailout.

Other states joining the Oklahoma letter were Louisiana, Mississippi, South Carolina, South Dakota, Tennessee, Texas and Utah.

The letter can be read here.