Feds looking at expanding FDIC coverage, sources
U.S. officials are studying ways they might temporarily expand Federal Deposit Insurance Corp. coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis.
Treasury Department staff are reviewing whether federal regulators have enough emergency authority to temporarily insure deposits greater than the current $250,000 cap on most accounts without formal consent from a deeply divided Congress, according to people with knowledge of the talks.
Authorities don’t yet view such a move as necessary, especially after regulators took steps this month to help banks keep up with any demands for withdrawals, the people said, asking not to be named describing confidential talks.
“We will use the tools we have to support community banks,” White House spokesman Michael Kikukawa said, without directly addressing whether the measure is being studied. “Since our administration and the regulators took decisive action last weekend, we have seen deposits stabilize at regional banks throughout the country and, in some cases, outflows have modestly reversed.” Still, the behind-thescenes deliberations show there are concerns in Washington as midsize banks call for broader government intervention after three lenders collapsed this month when uninsured depositors pulled their money, and as a fourth firm strives to avoid a similar fate. Shares of that one, First Republic Bank, have tumbled 90% since the start of the month.
Treasury Secretary Janet Yellen said the U.S. is prepared to repeat the actions it took recently to protect bank depositors if smaller lenders are threatened.
“Our intervention was necessary to protect the broader U.S. banking system, and similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” Yellen said in remarks before the American Bankers Association Tuesday.
The U.S. banking system “remains sound,” she said, differentiating current crisis from the spiral in 2008 that triggered trillions in financial losses globally.
“2008 was a solvency crisis,” she said, “rather what we’re seeing now is contagious bank runs.”
One legal framework under discussion for expanding FDIC insurance would use the Treasury’s authority to take emergency action and lean on the Exchange Stabilization
Fund, the people said.
That fund typically is used to buy or sell currencies and to provide financing to foreign governments. But the fund, created in the 1930s, has been used as a backstop for emergency lending facilities by the Fed in recent years. It’s the only pot of money under the full authority of the Treasury secretary.
Representatives for the FDIC and Fed declined to comment.
“Due to decisive recent actions, the situation has stabilized, deposit flows are improving and Americans can have confidence in the safety of their deposits,” a Treasury spokeswoman said in a statement.