Regional and community banks are increasingly advocating for the Federal Deposit Insurance Corporation (FDIC) to insure all bank deposits in order to prevent bank failures like the ones faced by Silicon Valley Bank and Signature Bank.
The FDIC currently insures up to $250,000 per depositor, leaving higher values vulnerable to bank failure. The SVB crisis led regulators to offer systemic risk exceptions to it and Signature Bank to insure all deposits, even those about the threshold.
Many mid-size and community banks think those exemptions should become the norm.
The Mid-Size Bank Coalition of America (MBCA) sent a letter to the Treasury Department, the FDIC, the comptroller of the currency and the Federal Reserve calling for the deposit insurance cap to be lifted for two years, according to a Bloomberg report.
"Doing so will immediately halt the exodus from smaller banks, stabilize the banking sector and greatly reduce the chances of more bank failures," the MBCA letter said.
Anne Balcer, chief of government relations and public policy at the Independent Community Bankers of America (ICBA), expressed similar sentiments.
"It may make sense for Congress to look at the insurance limit cap and revisit raising it based on metrics demonstrating increasing deposit balances since the previous increase, but the tone coming from Treasury of picking winners and losers defies logic and is largely inappropriate," Balcer told FOX Business.
Meanwhile, politicians on both sides of the aisle have also called for action.
Over the weekend, Sen. Elizabeth Warren, D-Massachusets, told CBS (NYSE:CBS)’s Face the Nation that the limit should be raised.
“Now the question is: Where's the right number on lifting it,” Warren said. “Is it $2 million, is it $5 million, is it $10 million? Small businesses need to be able to count on getting their money to make payroll, to pay the utility bills.”
Sen. Mike Rounds, R-South Dakota, told NBC's Meet the Press on Sunday that Congress should look into whether the limit should be increased.
The House Financial Services Committee plans to hold an oversight hearing on the banking crisis on March 29, according to reports, featuring Martin Gruenberg, chairman of the FDIC’s board of directors, and Michael Barr, the Federal Reserve Board of Governors vice chair for supervision.
For the moment, though, the Treasury Department isn’t moving to insure deposits not covered by the systemic risk exemptions.
In testimony last week, Treasury Secretary Janet Yellen said that the government would only move to backstop uninsured deposits “if a majority of the FDIC board, a supermajority of the Fed board, and I in consultation with the president, determine that the failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences."
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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