Mar 21, 2023 - Economy

U.S. government assures on bank deposits, but debt ceiling still looms

Illustration of a dollar-shaped weight causing cracks in the ground

Illustration: Sarah Grillo/Axios

In life, as they say, nothing is guaranteed. In this nation's financial system, however, it's increasingly looking like the opposite — with one big exception.

The big picture: Guarantees and assurances have poured in from the U.S. government since Silicon Valley Bank's bad bet gave way to a full-blown crisis of confidence in U.S. regional banks. Within days, uninsured depositors were rescued at SVB and Signature Bank — a firm message that depositors at other institutions didn't need to fret.

Now comes this: Treasury Secretary Janet Yellen today sent signals that the government is exploring ways to guarantee deposits of any size from an untold number of banks.

  • The FDIC currently guarantees deposits of up to only $250,000, but a growing chorus of banks, politicians and consumer advocates say that's much too low.

The intrigue: There's just one problem: The U.S. government can't even guarantee that it'll pay its own bills.

State of play: The Treasury Department is already taking so-called "extraordinary measures" to make its debt payments after reaching the congressionally established borrowing limit — but those efforts won't be enough in a matter of months.

  • At that point, everyone's expecting a standoff on Capitol Hill between Republicans and Democrats over raising the debt ceiling — and so far neither side is budging much.

What they're saying: "With the recent volatility we hope for a smooth agreement," writes Megan Horneman, chief investment officer at Verdence Capital Advisors. "However, history suggests this will drag on and investor confidence will be challenged."

What we're watching: Has the banking crisis scared Washington into striking a bipartisan deal to avoid further spooking markets again later this year?

The bottom line: While Democrats and Republicans may be able to agree that depositors should get a wide backstop, they haven't yet agreed on how to ensure that investors in U.S. debt will be paid what they're owed.

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