Pressure is mounting on the Biden administration to expand federal guarantees on bank deposits to boost confidence in the financial system and prevent further distress at US regional banks.
The Federal Deposit Insurance Corporation, which is funded by banks, guarantees deposits up to $250,000. But a growing group of influential bipartisan lawmakers and banking industry lobbyists have been pushing in recent days to raise or suspend those limits.
“I think that . . . The cap is a good move,” Elizabeth Warren, a Democratic senator from Massachusetts, told CBS on Sunday. “Is it $2mn? Is it $5 million? Is it 10mn? Small businesses need to count on getting their money to make payroll, pay utility bills. Non-profits need to be able to do that,” she added. .
The Biden administration is being forced to consider additional measures to protect banks after actions taken last week — including guaranteeing all deposits at Silicon Valley Bank and Signature Bank, and a Wall Street-led deposit infusion at First Republic Bank. reassure investors on Friday.
Biden administration officials have not ruled out the possibility of calling to expand the FDIC insured deposit limit, which would require congressional approval, nor have they taken a position on it. The White House and Treasury declined to comment Sunday.
Any move to expand the FDIC deposit guarantee would have to be carefully weighed against concerns that it could encourage risky behavior by banks as well as costs to banks and consumers, as it would likely be accompanied by higher fees. Rather than a short-term fix, it could be part of the long-term fix discussed in the wake of this week’s turmoil.
“All options have to be on the table, and that’s how I’m approaching it. But if we do this, we have to understand their trade-offs. It is not pure play to allow a large set of insurance coverage. It significantly costs the financial system and community banks in particular. We need to look at this very carefully,” Patrick McHenry, the Republican chairman of the House Financial Services Committee, told CBS.
A spokesman for Sherrod Brown, the Democratic chairman of the Senate Banking Committee, told the FT: “Senator Brown believes that American workers and their families should not have to pay the price for other people’s risky bets that don’t pay off — whether on Wall Street or in Silicon Valley. Any changes to deposit insurance should protect small businesses and workers, not big investors.”
The push to expand FDIC insurance reflects the fragmented landscape of the US banking industry, with about 4,000 lenders estimated to be overseen by the Federal Reserve.
While about half of the industry’s $31.4tn assets are concentrated in so-called globally systemically important banks such as JPMorgan Chase and Bank of America, trillions of dollars are held by thousands of smaller lenders.
According to the CFRA data, 99 so-called regional banks with assets between $10bn and $100bn hold $2.7tn, while about 3,500 “community banks” with less than $10bn in assets collectively hold $2.8tn in assets. and research service.
A coalition of US midsized banks has already sent a letter to regulators asking them to extend insurance to all deposits by two years. “Doing so would immediately halt the migration of deposits from smaller banks, stabilize the banking sector and greatly reduce the chances of further bank failures,” the group wrote, according to Bloomberg News.
US Treasury Secretary Janet Yellen faced criticism after telling Congress last week that uninsured deposits can only be guaranteed if US officials and regulators decide – at the level of each individual bank – if there is a systemic risk to the financial system. was done with SVB and signature.
Jefferies analysts said this week that the Fed’s loans to banks in need of short-term cash, along with other actions by the Treasury and the FDIC, should help ensure that more deposit withdrawals don’t lead to more bank failures. However, Jefferies analysts argued that current events are foreshadowing a potential credit crunch for small businesses in the near future.
“That regional banks have [fuelled] A post-pandemic small business boom will be more limited in their ability and willingness to lend, regardless of the stability of their deposits or access to liquidity from the Fed, Jefferies wrote.
Additional reporting by Colby Smith in Washington