The Federal Deposit Insurance Corp. is seeking to collect $542 million from Bank of America, claiming the bank miscalculated deposit insurance payments by incorrectly stating its risk exposure to counterparties.
According to a lawsuit the FDIC filed Monday, BofA underreported its counterparty exposure by “tens of billions of dollars” for each quarter from the second quarter of 2011 through the first quarter of 2016, enabling it to improperly retain an average of about $77 million per quarter that should have been contributed to the Deposit Insurance Fund.
The regulator sued after BofA refused to pay the invoice, inclusive of interest, that it had submitted. The bill could get bigger as the FDIC said the second-largest U.S. bank by deposits may owe “in excess of $1 billion.”
“The FDIC has not assessed and invoiced Bank of America yet for underpayments for quarters earlier than the seven quarters at issue here (i.e., for quarters prior to the second quarter of 2013),” the suit said, adding that the FDIC could amend its complaint.
The insurance premiums of the nine largest U.S. banks are based not only on their own risk levels but also those of their business partners. Because the FDIC assumes that the more concentrated a bank’s exposure is to a particular counterparty, the higher is its degree of risk, a 2011 rule requires banks to report their “consolidated” exposure to a counterparty, rather than separating out their exposure to a parent company from their exposure to its subsidiaries.
The FDIC alleges BofA was the only one of the nine largest banks that “did not consolidate its exposures in any manner whatsoever under the rule for the seven quarters at issue here.”
Bank of America is disputing the FDIC’s claims, saying it wasn’t until a 2014 rule, which became effective in 2015, that banks were required to fully group its counterparties together and therefore pay a higher insurance rate.
According to the FDIC, however, the 2011 rule was modified in 2014 but the requirement that banks “report counterparty exposure at the consolidated entity level never changed.”