By Pete Schroeder

Around 113 of the country's largest lenders will bear the cost of replenishing the $16 billion hit to the U.S. Federal Deposit Insurance Corporation's (FDIC) deposit insurance fund caused by recent bank failures, the agency said on Thursday.

A new "special assessment" fee of 0.125% would be applied to the uninsured deposits of banks in excess of $5 billion, based on the amount of uninsured deposits a bank held at the end of 2022.

While the fee applies to all banks, in practice it would affect banks with more than $50 billion in assets, which would cover over 95% of the cost, the agency said. No bank with less than $5 billion in assets would pay any fee, according to the FDIC.

The fee would be collected over eight quarters beginning in June 2024, but could be adjusted as the estimated losses to the insurance fund change. The extended timeline was intended to minimize the impact on bank liquidity and is expected to have a negligible impact on bank capital, according to FDIC officials.

The regulator proposed the new fee as it looks to replenish hefty costs it incurred backing all depositors at Silicon Valley Bank and Signature Bank after they failed in March. Both banks, which had extremely high levels of uninsured deposits, abruptly failed after depositors fled amid concerns over their financial health.

Regulators declared both firms critical to the financial system after the collapse, allowing them to backstop all deposits in a bid to calm broader fears spreading across the banking sector.

The fund stood at $128.2 billion at the end of 2022, according to the FDIC. The FDIC's deposit insurance fund guarantees customers' bank deposits of up to $250,000.

Typically, banks insured by the FDIC pay a quarterly fee to finance that fund, which protects depositors with less than $250,000 in a bank account when a lender fails.

But the decision to stand behind all deposits at SVB and Signature Bank, which ate into roughly 18% of the fund, triggered the extra fee.

The seizure of First Republic Bank and sale to JP Morgan Chase this month is expected to cost that fund another $13 billion.

Under law, the FDIC enjoys discretion in designing such a fee, and FDIC Chairman Martin Gruenberg said the proposal targets those who benefited most from the backstop.

"In general, large banks with large amounts of uninsured deposits benefited the most from the systemic risk determination," he said in a statement.

The staff proposal will be voted on later Thursday by the FDIC board. After the expected approval, the FDIC would solicit feedback from the banking industry and the public, before ultimately finalizing the new assessment.

(Reporting by Niket Nishant in Bengaluru and Pete Schroeder in Washignton; Editing by Anil D'Silva and Chizu Nomiyama)