The U.S. Midsize Bankers Association has asked federal regulators to extend FDIC insurance covering all deposits for the next two years. The group argues that “doing so would immediately halt the outflow of deposits from smaller banks, stabilize the banking sector, and significantly reduce the likelihood of further bank failures.” To avoid panic and further crises, it is essential to restore depositor confidence before other banks fail.”
To prevent “panic and further crises”
The Midsize Bankers Coalition of America (MBCA) has reportedly asked federal regulators to require Federal Deposit Insurance Corporation (FDIC) insurance on all deposits for the next two years; the MBCA currently represents about 110 banks, including those with about $100 billion in assets.
In a letter to the FDIC, Office of the Comptroller of the Currency (OCC), the Federal Reserve, and Treasury Secretary Janet Yellen seen by Bloomberg News, the group explained.
Doing so would immediately halt the outflow of deposits from smaller banks, stabilize the banking sector, and significantly reduce the likelihood of further bank failures.
The collapse of large banks such as Silicon Valley Bank and Signature Bank caused many depositors to withdraw their funds from local banks and move them to the largest banks in the country such as JPMorgan Chase and Bank of America. Customers concerned about bank failures are seeking safety in financial institutions that are perceived as too big to fail.
“Despite the fact that the banking industry as a whole is sound and safe, trust has been lost in all but the largest banks,” the group stressed.
“Confidence in the banking system as a whole must be restored immediately,” the letter continued, noting that deposit flight would accelerate if other banks failed.
Their MBCA letter emphasized.
It is essential to restore depositor confidence and avoid panic and further crises before other banks fail.
“The cost of deposit insurance is not trivial, but if all deposits can be insured temporarily, the chances of needing it are much, much smaller,” the coalition writes.
{But U.S. Treasury Secretary Janet Yellen said at a Senate hearing Thursday that not all uninsured deposits (39) would be protected in the event of a future bank failure. Meanwhile, Congressman Blaine Rutkemeyer warned that if the government does not guarantee all bank deposits, there will be a “rush” to smaller banks.
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