US officials talked about raising deposit insurance without Congress-sources

WASHINGTON, March 21 (Reuters) – Administration officials discussed the idea of ​​increasing deposit insurance without obtaining approval from Congress as they brainstorm different approaches to solving the turmoil in banking, two sources familiar with the talks said Tuesday.

The idea, potentially using the Treasury Department’s Exchange Stabilization Fund, was first floated by government officials during a flurry of conversations between the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corporation in the days after Silicon Valley Bank failed on March 10, according to one source. government.

The idea is not universally supported, said the source.

A second source familiar with the discussions said the idea had already been discussed but stressed that while a temporary solution without congressional approval had been discussed, any permanent action would require congressional approval. The source said they did not consider such a measure necessary.

News of the earlier talks was reported by Bloomberg.

As a direct result of the SVB fiasco, banks are also exploring using the Exchange Stabilization Fund to support broader deposit guarantees, according to one industry lawyer, as the industry also explores what options are available. One of the concerns raised was that the fund, which was the last used emergency reserve during the 2020 pandemic, only had $38 billion of available funds as of January 31.

Under current law, US regulators are supposed to go to Congress when they determine a “liquidity event” that requires an increase in the amount the government will guarantee.

Those restrictions were imposed among several other restrictions on the powers of regulators after the 2008 financial crisis and subsequent bank bailouts.

Among the concerns raised about the use of Treasury Department funds were expected criticism from Congress, and potential concerns over their legality, according to government sources.

“I think that’s a tough argument, you see the language… he says the FDIC has to provide reassurance in times of trouble, but it requires approval under this streamlined process,” said Sheila Bair, who chaired the FDIC during the 2008 crisis. “I think it’s questionable.”

Spokesmen for the White House, Fed, and FDIC declined to comment.

The Treasury Department declined to comment on any discussions, but a spokesperson said, “Due to the recent crackdown, the situation has stabilized, the flow of deposits has increased and Americans can have confidence in the safety of their deposits.”

On Tuesday, Under Secretary of the Treasury Wally Adeyemo said “decisive action” being taken by the Treasury, Fed and FDIC to protect depositors and ensure liquidity for other banks had stabilized the banking system, but a review of bank failures should be carried out.

“It is important that we review the failures of the two banks to ensure we have a set of rules and procedures for the banking system that continue to protect the economy and our depositors across the country,” Adeyemo said at the event. by the US Hispanic Chamber of Commerce.

“We of course continue to monitor the current situation and consider what steps can be taken to further strengthen America’s financial stability,” he said without elaborating.

Reported by Pete Schroder and Andrea Shalal; Edited by Megan Davies and Daniel Wallis

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