Midsize banks asking FDIC to protect all deposits: report

An FDIC sign is posted on a window at a Silicon Valley Bank branch in Wellesley, Mass., on Saturday, March 11, 2023. From winemakers in California to startups across the Atlantic Ocean, companies are scrambling to figure out how to manage their finances after their bank, Silicon Valley Bank, suddenly shut down March 10. U.S. customers with less than $250,000 in the bank can count on insurance provided by the FDIC. (AP Photo/Peter Morgan)

Midsize banks are reportedly asking the Federal Deposit Insurance Corporation (FDIC) to insure all bank deposits over the next two years to prevent additional bank runs. 

That comes after the run on Silicon Valley Bank prompted large depositors to move their money from regional banks to the largest U.S. banks over fears of additional collapses. 

In a letter to federal regulators, the Mid-Size Bank Coalition of America said that insuring all deposits would “immediately halt the exodus of deposits from smaller banks,” according to a report from Bloomberg News. 

“Notwithstanding the overall health and safety of the banking industry, confidence has been eroded in all but the largest banks,” the group wrote. “Confidence in our banking system as a whole must be immediately restored.”

The FDIC currently insures deposits up to $250,000, a figure that lawmakers and federal officials now say is too low. Countless Silicon Valley Bank depositors exceeded that cap, prompting regulators to protect all deposits in an effort to shore up confidence in U.S. banks.

But Treasury Secretary Janet Yellen told lawmakers last week that regulators would only protect uninsured deposits in banks that are large enough to have an impact on the financial system, drawing concerns from smaller institutions. 

Independent Community Bankers of America CEO Rebeca Romero Rainey denounced Yellen’s comments, stating that the policy “is a bailout for big banks that rewards mismanagement and risky behavior to the detriment of community banks and the communities they serve.”

The midsize bank coalition cited Yellen’s remarks in its letter to regulators. The group reportedly said that the enhanced insurance program should be funded through higher fees on banks that choose to participate. 

Regional banks have been seeing huge outflows of uninsured deposits in recent weeks. Large U.S. banks on Friday gave $30 billion in uninsured deposits to San Francisco-based First Republic Bank to shore up its finances and bolster confidence that depositors’ funds are safe.

Tags bank run banks FDIC financial system Janet Yellen

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