Big Banks Rapped on the Knuckles for Fiddling with Insured Deposit Numbers

In the wake of financial woes that rattled Silicon Valley Bank and triggered a mass exodus of customers, other banks across the U.S. have seemingly been playing a numbers game. They’ve been manipulating their deposit data, particularly reducing the amounts that were uninsured.

The Federal Deposit Insurance Corp. (FDIC), acting as the watchdog of the banking industry, didn’t take too kindly to this. On a sunny Monday, they sent a stern warning to banks, urging them to avoid distorting their deposit figures.

A Wall Street Journal study has revealed that Bank of America and Huntington National Bank had made some of the most substantial changes to their uninsured-deposit data. Since Silicon Valley Bank’s unfortunate collapse in March, a whopping 47 banks have reportedly revised their uninsured-deposit data downward by a total of nearly $200 billion.

Interestingly, several banks attempted to include a peculiar type of account within FDIC-insured deposits. Usually, the FDIC covers deposits up to $250,000. However, these unusual accounts – often linked to government bodies – exceeded this limit, yet the banks categorized them as insured because they backed them with collateral and promised a payback should the bank fail.

The FDIC wasn’t amused and quickly clamped down on this, sending a letter to the banks clarifying that only the deposits insured by the FDIC can be categorized as such. They stated, quite bluntly, that the presence of collateral didn’t automatically translate to federal deposit insurance coverage.

Bank of America was the most noteworthy culprit, decreasing its uninsured deposits by a massive $125 billion, or 14%. Though Bank of America is a banking behemoth and isn’t exactly on the verge of a bank run, altering the numbers could save them a pretty penny.

The FDIC had earlier announced a special assessment on banks with assets exceeding $5 billion. This was to cover the cost of guaranteeing uninsured deposits at Silicon Valley Bank and Signature Bank, both of which capsized in March. The assessment hinged on the bank’s uninsured deposits as of December 31. With its revised figures, Bank of America could end up saving more than $300 million over two years.

Huntington National Bank followed suit, slashing its uninsured deposits by 40%. Like Bank of America, they could end up making significant savings on the special assessment.

Meanwhile, some other banks tweaked their definitions to reduce their uninsured deposits in their latest reports. For instance, Bank of Hawaii witnessed a 20% drop in uninsured deposits in its first-quarter filing with the FDIC, largely due to the exclusion of collateralized deposits – a tactic the FDIC has deemed unsuitable.

As the banking industry grapples with these underhand tactics, it’s a stark reminder that trust and transparency should be the cornerstone of banking practices.