A coalition of midsize US banks have asked federal regulators to extend FDIC insurance to all deposits for the next two years, arguing the guarantee is necessary to prevent a broader run on the banks.
“Doing so will immediately stop the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce the chances of further bank failures,” the Coalition of America’s Midsize Banks said in a letter to regulators seen by Bloomberg News.
The collapse this month of Silicon Valley Bank and Signature Bank prompted a flood of deposits from regional lenders to the country’s biggest banks, including JPMorgan Chase and Bank of America. Clients frightened by bank failures took refuge in companies considered too big to fail.
“Despite the general health and safety of the banking industry, confidence has eroded in all but the largest banks,” the group said in the letter. “Confidence in our banking system as a whole must be restored immediately,” he said, adding that the flight of deposits would accelerate if another bank failed.
The group cited Treasury Secretary Janet Yellen’s remarks that the protection mechanisms put in place so far will protect uninsured deposits only if deemed necessary by regulators to protect the financial system. That category is unlikely to include the smaller banks represented by MBCA.
The expanded insurance program should be paid for by the banks themselves by increasing the deposit insurance assessment of lenders that opt to participate in increased coverage, the group proposed.
The letter was sent to Yellen, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, and the Federal Reserve.
Treasury spokesman Michael Gwin declined to comment, as did representatives for the FDIC, Fed and OCC.
US Treasury Assistant Secretary Wally Adeyemo said Friday that, based on discussions regulators have had with bank executives, deposits at small and midsize banks across the country had begun to stabilize and, in some cases, “modestly reversed”.
Brent Tjarks, a representative for the MBCA, declined to comment on the letter. His group includes banks with assets of up to $100 billion, and there are at least 110 coalition members. The organization was one of the groups that held down in favor of reducing some of the burdens that the Dodd-Frank Act placed on smaller lenders.
“It is imperative that we restore confidence among depositors before another bank fails, avoiding panic and a new crisis,” the MBCA wrote in the letter. “While the cost of deposit insurance is not negligible, it is much less likely to be needed if all deposits are temporarily insured.”
—With the assistance of Christopher Condon and Max Reyes.
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