Failed Banks — Part 2: Banks Want an FDIC Guarantee Expansion

The Federal Deposit Insurance Corporation (FDIC) insures bank deposits up to $250,000. Anything above $250,000 is gone. A lot of investors were shocked to learn that when Silicon Valley Bank, Silvergate and Signature Bank failed last week.

A coalition of mid-sized banks want the FDIC to change that. The worry is a bank run because of the panic over potentially failing banks. Some of those mid-sized banks are not members of the FDIC. The coalition wants that changed.

“Doing so will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce chances of more bank failures,” the Mid-Size Bank Coalition of America said.

The statement came in the form of a letter to Bloomberg News.

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

The group also warned that one more failure could set off a more serious situation.

The letter was also sent to U.S. Treasury Secretary Janet Yellen. With the letter was a plan to pay for the expanded program. Support would come from an increase in the deposit insurance assessment to lenders that choose to participate in the program.

The idea has the support of Senator Elizabeth Warren of Massachusetts who — before she was a senator — advocated on behalf of consumers and against banks and the banking industry. Warren wants to see the cap go from $250,000 maximum to many millions of dollars.

Source link: Bloomberg —

Source link: Insurance Business America —

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