U.S. lawmakers to examine merits of higher bank deposit insurance cap

WASHINGTON, March 19 (Reuters) – The four leading U.S. lawmakers in banking said Sunday they will consider whether higher federal insurance limits on bank deposits are needed to stem a financial crisis marked by the drain of large uninsured deposits from those smaller and regional banks.

“I think lifting the FDIC’s insurance cap is a good move,” Senator Elizabeth Warren, a Democrat, said on CBS’s “Face The Nation” program, referring to the Federal Deposit Insurance Corporation’s current $250,000 per depositor cap.

Asked what the new higher level should be, Warren, a member of the Senate Banking Committee, said: “These are questions we have to work out. Is it $2 million, is it $5 million? Is it $10 million? Small businesses have to be able to count on their money to pay their salaries.” to pay the electric bill.”

Warren declined to discuss conversations he had with the Biden administration about such a move, but said increasing the insurance limit “is one of the options that should be considered at this time.”

Senator Mike Rounds, a Republican on the Senate Banking Committee, also questioned whether the $250,000 limit, which was raised from $100,000 during the 2008 financial crisis, is still appropriate.

“Maybe that’s not enough,” Rounds told “Meet the Press” on NBC.

He added that regional and smaller banks will want some “guarantee” that they can compete with the big banks and “it will take a few months for consumers on the outside to realize that all of these banks are stable.”

Republican Representative Patrick McHenry, chairman of the House Financial Services Committee, said he would work to discuss the adequacy of FDIC deposit insurance, but added that he had not yet been in talks with Biden administration officials about raising the cap.

“What I’m going to do, legislatively, and in the oversight function, is to determine whether or not we need to address the FDIC savings rate,” McHenry said on the same CBS program.

During the financial crisis that erupted in 2008, the FDIC temporarily suspended all deposits to protect small banks.

Pressure on medium and small banks from deposit outflows continued on Friday despite a move by some major banks to deposit $30 billion in First Republic Bank (FRC.N), an institution rocked by the Silicon Valley Bank (SIVB.O) fiasco ) and Signature Bank (SBNY.O).

Several former officials, including former FDIC chief Sheila Bair, said regulators may need to redo temporary blanket guarantees on all US deposits. Under the Dodd-Frank financial reform act, such a move would require Congress to pass an accelerated timetable approval resolution.

McHenry said he wanted to examine the trade-offs of higher deposit insurance limits, “the moral hazard of having more risk-taking in the financial sector, and also the impact on community banks.”

A spokesperson for the US Treasury Department declined to comment. Treasury Secretary Janet Yellen told Senators last week that further insurement of uninsured bank deposits beyond those at SVB and Signature Bank would require a determination of systemic risk by her, President Joe Biden and a “supermajority” of the Federal Reserve board and FDIC.

Senator Chris Van Hollen, a Democrat on the Senate Finance Committee, also told Fox News Sunday that Congress and regulators need to discuss the $250,000 limit, but not all banks need to be “bailed out.”

“There are going to be questions going forward about how we handle deposits in excess of $250,000 as covered here. But what the mechanics of doing that are is a matter of great contention,” said Van Hollen.

Reporting by David Lawder at Washington Editing by Nick Zieminski and Matthew Lewis

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