Washington quietly prepares a bank rescue
Tucked inside Congress' $2 trillion economic rescue package for America is sweeping authority for the government to come to the aid of the one industry that has insisted it doesn't need a bailout: the big banks.
Lenders that the government saved in the 2008 financial crisis have been touting the strength of their balance sheets heading into the coronavirus pandemic. But Congress is backstopping them anyway with a provision in the bill that would give the Federal Deposit Insurance Corp. power to guarantee checking accounts beyond the $250,000 in deposit insurance that it now offers bank customers.
Washington's move to stand behind the banking industry underscores the aggressive efforts underway by officials throughout the government to prepare for the worst - including potential runs on deposits as the economic outlook darkens.
"The banks are in very good shape, but people are panicking anyway," said Karen Petrou, a managing partner at Federal Financial Analytics who advises bank executives on policy issues. The move has divided the industry. Smaller banks, which heavily depend on deposits and are eager to show customers that their money is safe, have been lobbying policymakers to expand the federal guarantee of the banking system. The largest banks, which have nationwide operations and vast funding sources, don't think it's needed and fear it could be cast as a new bank bailout.
The legislation, signed Friday by President Donald Trump, would also open the door to the FDIC guaranteeing the debt of banks themselves to shore up another funding source for lenders if they hit hard times. The Depression-era agency, which was created to restore confidence after a series of desperate bank runs by customers, would still need to decide how it wants to use the authority.
Lawmakers involved in the effort argue that they want people to be reassured that their money is safe in American banks as the economy teeters. "The best way to assure them is to let them know that there will be no run on a bank that the bank can't cover - meaning all of the deposits will be covered," said Rep. Al Green (D-Texas), who sponsored an earlier House version of the account guarantee legislation.
While bankers who support the measures say they aren't seeing widespread withdrawals, they also want to make clear to their customers that they have no reason to worry.
"The fact that most bank lobbies are closed is something that I'm sure causes anxiety and is distressing for consumers," said Noah Wilcox, chairman and CEO of Wilcox Bancshares in Grand Rapids, Minn. "To be able to tell consumers, 'Hey, everything's taken care of, the federal government has your back on this,' really puts them at ease."
Wilcox is chairman of the Independent Community Bankers of America, a trade association that has led the lobbying campaign to enact a new FDIC account guarantee. The group exclusively represents the nation's smallest lenders.
"Better safe than sorry," said Paul Merski, the community bank association's vice president for congressional relations and strategy. "We get a lot of reports from our 5,000 banks around the country. So far, we've seen just a minor increase in demand for cash."
In the legislation, lawmakers are reviving authority that the FDIC used during the 2008 bank rescue, but that Congress later restricted - just one of a number of ways the coronavirus pandemic has Washington dusting off powers it last wielded during the Wall Street bailout.
"It was included to give the agencies the tools they need to appropriately respond to the circumstances as they evolve," said a spokesperson for Senate Banking Chairman Mike Crapo (R-Idaho).