Mar 18, 2023 - Economy

Midsize banks plead for unlimited FDIC backstop for two years

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Photo: Celal Gunes/Anadolu Agency via Getty Images

A coalition of midsize U.S. banks is calling on the government to insure all deposits for the next two years, in the wake of Silicon Valley Bank's emergency rescue that insured all of the firm's deposits regardless of size.

Driving the news: The Mid-Size Bank Coalition of America sent a letter to regulators arguing that a temporary suspension of the FDIC's deposit insurance limit is necessary to ensure that smaller banks can navigate the current banking crisis, Bloomberg reported.

  • "Doing so will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce chances of more bank failures," the letter said, according to Bloomberg.
  • Tesla CEO Elon Musk also endorsed the idea in a Twitter post early Saturday, saying the move was needed to "stop bank runs."

Why it matters: After the sudden collapse of Silicon Valley Bank and New York's Signature Bank, the spotlight is on banks that may also be vulnerable to a sudden outflow of deposits.

  • The FDIC currently insures deposits up to $250,000, though the agency's decision to protect SVB and Signature depositors suggests a broader willingness to back customer funds.
  • Separately, Bloomberg also reported that billionaire investor Warren Buffett was in contact with the White House, heightening speculation that he could provide financial support to regional banks.

The recipients: The MBCA sent its letter to Treasury Secretary Janet Yellen, the FDIC, the comptroller of the currency and the Fed, according to Bloomberg.

What we're watching: Whether Washington answers the growing clamor to broaden FDIC deposit protection. California Democratic Rep. Ro Khanna is preparing to introduce legislation that removes the agency's coverage cap, Dealbook reported on Saturday.

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