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- 1 Mid-sized U.S. banks are asking the FDIC to insure deposits for two years, according to a report.
- 2 The financial system risks more bank runs without aid, as the group said, while deposits have been moving into firms seen as too big to fail.
As per the report, the banking coalition argued in a letter to federal regulators that their move would bring stability to the banking sector. And will also minimize the chances of “more bank failures.” According to a Bloomberg report, “a coalition of midsize U.S. banks asked federal regulators to extend FDIC insurance to all deposits for the next two years, arguing the guarantee is needed to avoid a wider run on the banks.”
The group also proposed the expanded insurance program will be paid for by the banks themselves by increasing the deposit-insurance assessment on lenders that choose to participate in increased coverage, as stated in the report.
MBCA’s Letter to The FDIC
The Mid-Size Bank Coalition of America (MBCA) said in a letter to the U.S. Federal Deposit Insurance Corporation (FDIC) as “Doing so will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce chances of more bank failures.”
The MBCA proposed that the banks themselves fund the insurance program by raising the deposit-insurance assessment on lenders who opt to participate in the increased coverage. The report added that extending insurance will soon stop the exodus of deposits from tiny banks, which in turn will stabilize the banking sector and regain confidence in the banking system. However, till now, there is no immediate response received from the FDIC and MBCA.
The collapse of Silicon Valley Bank (SVB), which held a high number of uninsured deposits beyond the FDIC guarantee limit, spooked customers who wanted to pull out, resulting in the bank run. And then the collapse of Signature Bank further rattled confidence in US banks. That wiped out billions of dollars from U.S. banking stocks.
Amid the banking crisis reflecting in the U.S. stock market, rumors are also spreading that First Republic Bank can be another SVB. But as FDIC officially released a joint statement on March 16 that states “11 banks announced $30 billion in deposits into First Republic Bank.” This is essentially support by a group of large banks. FDIC also said this demonstrates the resilience of the banking system.
Moreover, Elizabeth Warren, a U.S. Senator recently said that she is “calling for an independent investigation into the recent bank and regulatory failures. The Inspectors General for the Treasury, Fed, and FDIC should deliver a preliminary report to Congress in 30 days. Regulators and Congress must act quickly to prevent further economic harm.” She also said that these banking failures were “extraordinary events.”
Financial regulators and Congress must move quickly to close the gaps that allowed these bank failures to happen, and a thorough investigation will be essential for reforms.
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
