U.S. officials are reportedly studying ways to expand the current scope of deposit insurance that would guarantee all U.S. bank deposits should the current banking crisis worsen.
The current deposit insurance cap under the Federal Deposit Insurance Corporation (FDIC) stands at $250,000, however, following the collapse of several banks in March, there have been calls to increase that amount.
Organizations such as the Mid-Size Bank Coalition of America called on March 18 for the cap to be lifted for the next two years, citing a need to protect depositors and to stop capital being pulled from smaller banks for supposedly safer-looking heavyweights.
According to a March 21 Bloomberg report citing “people with knowledge of the talks,” Treasury Department staff members are currently discussing the possibility of the FDIC being able to expand the current deposit insurance beyond the max cap to cover all deposits.
The move would ultimately hinder on what level of emergency authority federal regulators have, and if the insurance cap can be increased without formal consent from Congress.
Bloomberg’s sources indicated, however, that U.S. authorities don’t deem such a drastic move necessary at the moment, as recent steps taken by financial regulators are likely to be sufficient.
As such, they stated that a potential strategy is being whipped up just in case the current situation gets worse.
In response to Silvergate, Signature Bank and Silicon Valley Bank going bust in recent weeks, the Federal Reserve rolled out the $25 billion Bank Term Funding Program (BTFP) on March 13, as the government pushed to stem any further contagion.
Related: UBS Group agrees to $3.25B ‘emergency rescue’ of Credit Suisse
Meanwhile, in a March 20 press briefing, Press Secretary Karine Jean-Pierre was specifically asked if the federal government was supportive of a push from small and mid-size banks to expand FDIC insurance beyond $250,000.
Jean-Pierrre was tight-lipped on the Biden Administration’s view, noting that “our goal is to ensure the financial system is stable,” before emphasizing that creating a fair playing field was the “focus of Treasury and the bank regulators.”
“And as you saw, due to our actions this week at the direction of the President, Americans should be confident of their deposits. We’ll be there when they — when they need them.”
“And — and so, again, that’s what our focus is going to be. We don’t have any new announcements at this time. But clearly, we want to make sure that our financial system is stable,” she added.
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