US lawmakers are examining the merits of a higher FDIC insurance limit on bank deposits

The headquarters of the Federal Deposit Insurance Corp. (FDIC) in Washington, DC, USA, on Monday, March 13, 2023.

Al Drago | Bloomberg | Getty Images

Four prominent U.S. banking lawmakers said Sunday they would consider whether a higher federal insurance limit on bank deposits was needed to stem a financial crisis characterized by the outflow of large, uninsured deposits in smaller and regional banks.

“I think lifting the FDIC insurance limit is a good move,” Sen. Elizabeth Warren, a Democrat, said on the CBS program “Face The Nation,” referring to the Federal Deposit’s current cap of $250,000 per depositor. Insurance Corporation.

When asked what the new, higher level should be, Warren, a member of the Senate banking committee, said, “This is a question we need to resolve. Is it $2 million, is it $5 million? Is it $ 10 million? Small businesses should be able to count on getting their money to pay the payroll, to pay the utility bills.”

Warren declined to discuss conversations she has had with the Biden administration about such a move, but said an increase in the insurance limit is “one of the options that should be on the table now”.

Senator Mike Rounds, a Republican on the Senate banking committee, also questioned whether the $250,000 limit, which was raised from $100,000 during the 2008 financial crisis, was still appropriate.

“Maybe that’s not enough,” Rounds told NBC’s “Meet the Press.”

He added that regional and smaller banks would like some “reassurance” that they can compete with larger banks and “it will take a few months for consumers outside to recognize that all these banks are stable.”

Republican Rep. Patrick McHenry, chairman of the House Financial Services Committee, said he would work to address FDIC deposit insurance adequacy, but added that he has not had discussions with Biden administration officials about the increasing the limit.

“However, what I will do legislatively and in an oversight role is determine whether or not we should address the FDIC deposit level,” McHenry told the same CBS program.

During the financial crisis that broke out in 2008, the FDIC temporarily suspended all deposits to protect smaller banks.

Pressure on medium and smaller banks from deposit outflows continued Friday despite an attempt by several major banks to deposit $30 billion into First Republic Bank, an institution rocked by the failures of Silicon Valley Bank and Signature Bank.

Some former officials, including former FDIC chief Sheila Bair, have said regulators may need to reiterate a temporary blanket guarantee on all US deposits. Under the Dodd-Frank financial reform bill, such a move requires Congress to pass a resolution of approval on an accelerated schedule.

McHenry said he wanted to explore the trade-offs of higher deposit insurance limits, “the moral hazard of taking more risk in the financial industry, and also the impact it would have on community banks.”

A spokesman for the US Treasury Department declined to comment. Treasury Secretary Janet Yellen told senators last week that further guarantees of uninsured bank deposits beyond those at SVB and Signature Bank would require systemic risk assessments by her, President Joe Biden and “super majorities” of the Federal Reserve’s boards. and the FDIC.

Senator Chris Van Hollen, a Democrat on the Senate Finance Committee, also told Fox News on Sunday that Congress and regulators need to address the $250,000 cap, but not every bank needs to be “bailed out.”

“There will be a question in the future about how we handle deposits over $250,000 that are covered here. But what the mechanism would be if we did that at all is something that is very much up for debate” said Van Hollen.





Leave a Reply

Your email address will not be published. Required fields are marked *