The US studies ways to insure all bank deposits

US authorities are studying ways to temporarily expand Federal Deposit Insurance Corp.’s coverage to all deposits, a move called for by a coalition of banks that argues it is necessary to avoid a potential financial crisis.

The team of Treasury Department is reviewing whether federal regulators have sufficient emergency authority to temporarily insure deposits above the current $250,000 limit in most accounts without the formal consent of a deeply divided Congress, according to people with knowledge of the talks.

Authorities do not yet see such a move as necessary, especially after regulators took action this month to help banks keep up with withdrawal demands, said the people, who asked not to be named as talks they are confidential. Even so, they are developing a strategy based on due diligence in case the situation worsens.

“We will use the tools we have to support community bankssaid the spokesman for the White House, michael kikukawa, without directly addressing whether the measure is being studied. “Since our Administration and regulators took decisive action last weekend, we have seen deposits stabilize at regional banks across the country and, in some cases, outflows reverse slightly.”.

Still, behind-the-scenes deliberations show there are concerns in the corridors of power in Washington, as midsize banks call for broader government intervention after three financial institutions collapsed this month as uninsured depositors withdrew their money. , and while a fourth bank struggles to avoid a similar fate.

The latter’s actions First Republic Bankhave fallen 90% since the start of the month as industry leaders tried to find a way to strengthen the company’s finances.

Treasury Secretary Janet Yellen says the United States is prepared to repeat actions it took recently to protect bank depositors if smaller lenders are threatened, though she did not address the possibility of a temporary expansion in deposit insurance. .

“Our intervention was necessary to protect the US banking system in general, and similar actions could be justified if smaller institutions suffer runs on deposits that present a risk of contagion”according to excerpts from remarks Yellen will deliver Tuesday at a banking industry conference in Washington.

A legal framework under discussion to expand life insurance FDIC it would use the authority of the Treasury Department to take emergency measures and rely on the Exchange Stabilization Fund, the people said.

“Due to recent decisive actions, the situation has stabilized, deposit flows are improving, and Americans can have confidence in the safety of their deposits.said a spokeswoman for the Treasure it’s a statement.

Officials for the FDIC and the Fed declined to comment. The government and independent regulators are grappling with the first banking crisis since the passage of the 2010 Dodd-Frank Act, a sweeping shakeup of the financial regulatory system.

A dangerous precedent

The Mid-Size Bank Coalition of America, a grouping that includes banks with assets of up to $100 billion, has urged regulators to raise the current cap on deposit insurance, according to a March 17 letter seen by Bloomberg. The organization expressed concern that if another regional bank fails, more depositors will move their money to the country’s largest banks, regardless of the underlying health of their smaller competitors.

While some lawmakers, including Republicans, have said they are considering changes to the current FDIC insurance cap of $250,000, several House conservatives have spoken out against a 100% guarantee.

“Any universal guarantee on all bank deposits, whether implicit or explicit, enshrines a dangerous precedent that simply encourages future irresponsible behavior to be paid for by those not involved and following the rules.the House Freedom Caucus said in a statement.