While the limit isn’t an issue for most individuals, businesses that banked with Silicon Valley Bank would have been in deep trouble if federal regulators had not taken the unprecedented step of protecting all deposits.
It’s not clear that the same step will be taken for depositors in smaller banks, as Treasury Secretary Janet Yellen noted last week that the bank in question must be large enough to have an impact on the broader financial system.
That’s prompting lawmakers to consider raising the FDIC insurance cap as a long-term solution.
Sen. Elizabeth Warren (D-Mass.) told CBS News’ “Face the Nation” on Sunday that Congress needs to raise the limit so businesses can count on getting their money back if a bank goes under. She said that the new number could be in the millions.
“But recognize that we have to do this, because these banks are under-regulated, and if we lift the cap, we are relying even more heavily on the regulators to do their jobs,” Warren said.
Rep. Patrick McHenry (R-N.C.), chairman of the House Financial Services Committee, said he would explore whether the cap is too low, noting Congress raised it from $100,000 to $250,000 after the 2008 financial crisis.
A coalition representing mid-size banks, meanwhile, is reportedly pushing the FDIC to insure all bank deposits over the next two years to “immediately halt the exodus of deposits from smaller banks.”
The conservative House Freedom Caucus on Monday came out against any effort to raise the insurance limit, stating that banks and their customers “must not be forced to shoulder the costs for bailing out large depositors.”
“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 who followed the rules,” the caucus said in a statement.