Least Cost Exception Act

Summary#

This bill amends section 13(c)(4) of the Federal Deposit Insurance Act. It lets the Deposit Insurance Corporation (the Corporation) choose a resolution method that is not the least costly to the Deposit Insurance Fund (DIF) in limited cases. The Corporation may do this if it finds the option meets certain requirements and if the Corporation and the Federal Reserve Board, after consulting the Treasury Secretary, determine the extra risk to the DIF is outweighed by the expected benefit of limiting further concentration of the U.S. banking system in global systemically important banking organizations (G-SIBs).

The bill requires the Corporation to adopt a rule, within one year, that sets the maximum amount of the DIF’s net worth that may be used for any such decision. The selected alternative must be the least costly option among those that do not involve a transaction with a G-SIB and that do not cost more than liquidation. The cost difference between the selected alternative and a covered alternative (one that sells substantially all assets or assumes substantially all liabilities to a G-SIB) must be less than the specified maximum. If the selected alternative involves another person buying assets or assuming liabilities, that person must pay an assessment to the DIF over a period of at least five years that, when discounted reasonably, equals the cost difference. The Corporation must report to the House Financial Services Committee and the Senate Banking Committee within 30 days after choosing such an alternative, with an analysis of the economic difference in costs. The bill defines “covered alternative” and references the existing regulatory definition of a global systemically important banking organization.

The bill also states that one existing statutory provision (section 13(c)(4)(H)) does not apply to these amendments.

What it means for you#

  • For regulators: The FDIC (the Corporation), the Federal Reserve Board, and the Treasury will have a formal process to approve using higher-cost resolution methods to avoid sales to large global banks.
  • For banks and buyers: A buyer that purchases assets or assumes liabilities under a selected alternative may have to pay an assessment to the DIF over at least five years to cover the cost gap.
  • For the public and depositors: No publicly available information on direct effects for individual depositors is provided in the bill text.

Expenses#

  • The bill requires the Corporation to set a maximum share of the DIF’s net worth that may be used for these exceptions, but it does not set a dollar amount.
  • If the Corporation selects a higher-cost alternative, the difference in cost must be below that maximum, and private purchasers may be required to pay assessments over not less than five years equal, in aggregate discounted terms, to that difference.
  • No publicly available information on estimated total costs or budgetary impacts is included in the bill text.

Proponents' View#

No publicly available information.

Opponents' View#

No publicly available information.