US banking authorities should go to Congress and ask for a “blanket backstop” against uninsured deposits if they see systemic risk, a former top regulator said on Friday as she criticized the “one-off” bailouts of two banks late last week. Speaking on CNBC, Sheila Baer, who ran the Federal Deposit Insurance Corp. from 2006 to 2011, said she would not have disclosed the systemic nature of Silicon Valley bank SIVB, -60.41% or Signature Bank SBNY, -22.87% of New York in her former role as head of the FDIC. She mentioned the relatively small size of the two banks.
Watch now: Biden called for tougher penalties for failed bank executives, but Baier said if regulators see a “truly systemic problem” with uninsured deposit withdrawals, they should go to Congress and get approval to backstop uninsured depositors at all banks. “If you do this one-off,” she said, bailing out some banks but not others, “it creates uncertainty, and those who don’t get bailouts are under more pressure.” Regulators, including the FDIC, said Sunday that Silicon Valley bank customers will have access to all of their money, just as depositors at Signature Bank in New York, after the two institutions failed. That means going above the limit for FDIC coverage, which is $250,000 per bank. The question of who is safe and who isn’t when banks are in trouble was brought up in congressional hearings this week, as lawmakers questioned Treasury Secretary Janet Yellen. Testifying before the Senate Finance Committee, Yellen was asked whether regional bank KRE, -5.99% depositors should expect the federal government to bail them out if their bank fails. Yellen responded that uninsured deposits would only be guaranteed if a bank failure posed a “systemic risk” to the US economy. Some lawmakers are pushing the idea of implementing universal deposit insurance. But a major concern for lawmakers, as MarketWatch reports, is how to pay for such a system. Read: Unlimited deposit insurance: A radical idea gaining steam in Congress
