A coalition of mid-size banks told federal regulators that fully insuring all deposits for the next two years “will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce chances of more bank failures.” (Shutterstock),
ACROSS AMERICA — A coalition of midsize banks across the country has asked federal regulators to fully insure all deposits for the next two years, Bloomberg reported.
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In their letter, seen by Bloomberg, the Mid-Size Bank Coalition of America said guaranteeing FDIC insurance on all deposits will help stabilize the banking system and restore confidence in it to avoid further bank runs.
Deposits at FDIC-insured banks are covered up to $250,000.
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The MBCA letter came after the collapse earlier this month of Silicon Valley Bank and Signature Bank. A third bank, First Republic, got a $30 billion bailout from 11 of America’s largest banks last week after a week of turmoil in the U.S. banking sector.
Coalition banks have assets averaging $20 billion, but as large as $100 billion. There are about 110 member banks found in all 50 states and Washington, D.C., as well as three U.S. territories. Each coalition bank employs an average of 2,500 people, according to the MBCA website.
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Extending the guarantee “will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce chances of more bank failures,” according to the letter sent to Treasury Secretary Janet Yellen, the Federal Deposit Insurance Corp., the Comptroller of Currency and the Federal Reserve Board.
Since the bank failures, customers of regional banks have been moving their money to larger banks seen as too big to fail. The banking group is worried about a chain reaction and more flight by depositors should another bank fail.
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“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.”
The bank group proposes that banks pay for the expanded insurance program by increasing the FDIC assessment on banks that want the increased coverage.
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U.S. regulators have tried to calm fears over threats to banking systems. The Federal Reserve said cash-short banks had borrowed about $300 billion in the week up to Thursday.
Separately, New York Community Bank agreed to buy part of failed Signature Bank in a $2.7 billion deal, the FDIC said Sunday. The FDIC said $60 billion in Signature Bank’s loans will remain in receivership and are expected to be sold off in time.
Traders expect last week’s turmoil to lead the Fed to limit a rate hike at this week’s meeting to 0.25 percentage points. That would be the same as the previous increase and half the margin traders expected earlier.
A survey released Friday by the University of Michigan showed inflation expectations among American consumers are falling. That matters to the Fed, which has said such expectations can feed into virtuous and vicious cycles.
The Associated Press contributed to this report.
