Midsize US banks ask FDIC to insure deposits for two years

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, stabilise the banking sector and greatly reduce chances of more bank failures,” the Mid-Size Bank Coalition of America (MBCA) said in a letter to regulators.
The collapse 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 group cited remarks by Treasury Secretary Janet Yellen that the backstops put in place so far will protect uninsured deposits only if regulators found it “necessary to protect the financial system.” That’s a category unlikely to include the smaller banks represented by the MBCA.
The expanded insurance programme 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 letter was sent to Yellen, the Federal Deposit Insurance Corp, the Comptroller of the Currency and the Federal Reserve.
Treasury spokesman Michael Gwin declined to comment, as did representatives for the FDIC, Fed and OCC. Deputy US Treasury Secretary Wally Adeyemo said that, based on discussions regulators have had with banking executives, deposits at small- and medium-sized banks across the country had begun to stabilise and in some cases “modestly reverse.”