A coalition of midsize US banks asked federal regulators to extend FDIC insurance to all deposits for the next two years, arguing the guarantee is needed to avoid a wider run on the banks.
(Bloomberg) — A coalition of midsize US banks asked federal regulators to extend FDIC insurance to all deposits for the next two years, arguing the guarantee is needed to avoid a wider run on the banks.
“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 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 out of regional lenders and into the nation’s largest banks, including JPMorgan Chase & Co. and Bank of America Corp. Customers spooked by the bank failures were taking refuge in firms seen as too big to fail.
“Notwithstanding the overall health and safety of the banking industry, confidence has been eroded in all but the largest banks,” the group said in the letter. “Confidence in our banking system as a whole must be immediately restored,” it said, adding that the deposit flight would accelerate should another bank fail.
The expanded insurance program should be paid for by the banks themselves by increasing the deposit-insurance assessment on lenders that choose to participate in increased coverage, the group proposed.
The MBCA’s letter was sent to the Federal Deposit Insurance Corp., the Comptroller of the Currency, the Federal Reserve and Treasury Secretary Janet Yellen.
MBCA members include banks with assets of as much as $100 billion. There are at least 110 members of the coalition.
“It is imperative we restore confidence among depositors before another bank fails, avoiding panic and a further crisis,” the organization wrote. “While the cost of deposit insurance is not insignificant, the likelihood of it being needed is much, much smaller should all deposits be temporarily insured.”
Brent Tjarks, a representative for MBCA, declined to comment.
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