The U.S. is in the midst of a banking crisis. There has been expected fallout from the collapse of Silicon Valley Bank. This has prompted U.S. officials to start searching for ways they might temporarily expand Federal Deposit Insurance Corp. coverage to all deposits, a move sought by a coalition of banks.
While they are stressing that it’s needed to head off a potential financial crisis, some observers are wary of such a move.
Insider sources told Bloomberg that the Treasury Department is reviewing whether federal regulators have enough emergency authority to temporarily insure deposits greater than the current $250,000 cap on most accounts without formal consent. This proposal has divided Congress.
“We will use the tools we have to support community banks,” White House spokesman Michael Kikukawa said. “Since our administration and the regulators took decisive action last weekend, we have seen deposits stabilize at regional banks throughout the country and, in some cases, outflows have modestly reversed.”
The Federal Reserve will close its two-day meeting today, March 22, and all eyes are on what Federal Reserve Chairman Jerome Powell will say and do about the banking crisis.
Three lenders–Silvergate, Signature Bank and Silicon Valley Bank— have collapsed this month when uninsured depositors pulled their money, and as a fourth bank–First Republic Bank–is trying hard to stay open. First Republic Bank shares have tumbled a whopping 90 percent since the start of the month.
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“Our intervention was necessary to protect the broader U.S. banking system, and similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” Yellen said, according to excerpts of remarks she’s set to give at a banking industry conference in Washington later Tuesday. Treasury Secretary Janet Yellen said the U.S. is prepared to repeat the actions it took recently to protect bank depositors if smaller lenders are threatened, though she didn’t address the possibility of a temporary expansion in deposit insurance.
Organizations such as the Mid-Size Bank Coalition of America called for the cap to be lifted for the next two years to protect depositors and to stop capital being pulled from smaller banks, Coin Telegraph reported.
President Joe Biden speaks before presenting the 2021 National Humanities Medals and the 2021 National Medal of Arts at White House in Washington, March 21, 2023. (AP Photo/Susan Walsh)/Treasury Secretary Janet Yellen listens as she testifies during a House Ways and Means committee hearing on President Joe Biden’s fiscal year 2024 budget request, March 10, 2023, on Capitol Hill in Washington. Yellen says the U.S. banking system remains sound. Yellen will be the first Biden administration official to face lawmakers over the decision to protect uninsured money at two failed regional banks, a move some observers call a bank “bailout.” Yellen will testify before the Senate Finance Committee on Thursday, a week after the second-largest bank collapse in U.S. history. (AP Photo/Mariam Zuhaib, FIle)/Federal Reserve Chairman Jerome Powell speaks during a House Financial Services Committee hearing to examine the Semiannual Monetary Policy Report to Congress, March 8, 2023, on Capitol Hill in Washington. (AP Photo/Jose Luis Magana)