In the aftermath of Silicon Valley Bank and Signature Bank, there is a bipartisan push in Washington to create unlimited deposit insurance.
Today, the Federal Deposit Insurance Corporation (FDIC) insures accounts up to $250,000.
This changed last week when the U.S. government bailed out insured and uninsured depositors, including those with ties to the Chinese Communist Party (CCP).
But while Treasury Secretary Janet Yellen conceded that the U.S. government would not afford the same protections to community banks, Republicans and Democrats appear to be willing to revisit federal deposit insurance and revise it to shield all deposits from failures, according to Semafor.
From the article:
Sen. Elizabeth Warren, D-Mass., told Semafor she believes it should be lifted once again with Wall Street bearing the full cost.
“The right answer is clearly to get that number up higher and to have the banks pay for that increased protection rather than the federal government coming in, after the fact in the middle of a crisis, and providing the help to stop a nationwide run on banks,” Warren, who sits on Senate Banking, said.
“I’m certainly open to it. I think that you have to do it proactively instead of retroactively,” Sen. J.D. Vance, R-Ohio, told Semafor. He argued that right now the U.S. has a de facto “two-tier” banking system.
“Everybody understands implicitly that if [JP Morgan] fails tomorrow, its depositors are gonna get a bailout from the federal government,” Vance, another Senate Banking member, said. “Clearly, a $300 million bank in southern Ohio is not going to get a bailout from the federal government.”
Both Vance and Sen. Thom Tillis, R-N.C., suggested pegging the current insurance deposit limit to inflation. Sen. Mike Rounds, R-S.D., also told Semafor that the current level is “way too low, and I’ve always felt that way.”
Lindsay Owens, a progressive economist and executive director of the Groundwork Collaborative, said there’s a “reckoning” underway on deposit insurance.
“I don’t think there’s any putting the toothpaste back in the tube here once you start insuring 100% of deposits,” she told Semafor. “You probably need new premium structures and new laws in place.”
At least one prominent Republican wants to do exactly that. Sen. Mitt Romney, R-Utah, is pushing for universal deposit insurance. While he doesn’t sit on the Senate Banking panel, Romney is making the case to other Republicans — including Vance — that charging large depositors an insurance premium that differentiates between the size and riskiness of the bank would be effective at preventing the next bank run.
“I just believe that you can’t have depositors worrying about getting their money back,” Romney told Semafor. “Anytime that’s going to be the case, you’re going to present some risks to the sector.”
Yikes.
Considering that the total base deposit is around $17 trillion, how would the U.S. government come up with the money?
Oh, that’s right: the Federal Reserve and the amazing printing press.
Leave a Comment