A coalition of mid-size US banks has asked federal regulators to guarantee all customer deposits for two years, even above the usual limit of $250,000, to avoid contagion after the collapse of Silicon Valley Bank, Bloomberg reported. Saturday.
The measure would “immediately halt the exodus of deposits from smaller banks, stabilize the banking sector, and greatly reduce the chances of further bank failures,” the Mid-Size Bank Coalition of America (MBCA) argued in a letter to the authorities, according to the report.
The recent bankruptcies of Silicon Valley Bank (SVB) and Signature Bank have caused a crisis of confidence in the industry.
Many clients of banks of similar size have withdrawn their money and deposited it with larger institutions, such as JPMorgan Chase or Bank of America, which are considered too big for the government not to bail them out should they face collapse.
This week First Republic bank, which mainly serves high-net-worth clients, saw its stock valuation fall 80 percent amid fears it could become the next domino to fall. Headquartered in San Francisco, it is the 14th largest bank in the US by assets.
Also Read: Moody’s Downgrades First Republic Bank’s Credit Ratings
Deposits in the US are currently protected by the banking regulator, the Federal Deposit Insurance Corporation (FDIC), up to $250,000.
“Despite the overall health and safety of the banking industry, trust has eroded in all but the largest banks,” the coalition said, according to Bloomberg.
In particular, he called on the FDIC, the Federal Reserve and Treasury Secretary Janet Yellen to ensure that confidence is “immediately restored.”
The group of banks proposes to finance this measure themselves by increasing the amount of contributions they already pay to the FDIC to guarantee deposits.
On Thursday, eleven major US banks pledged to deposit a total of $30 billion in First Republic accounts.
Bank of America, Citigroup, JPMorgan Chase and eight other institutions hope to show their confidence in the nation’s banking system, according to a joint statement.
The coalition and authorities could not immediately be reached by AFP for comment.
