Mid-Size Banks Ask for Deposit Insurance Extension
Zach Anderson Mar 20, 2023 09:02
The Mid-Size Bank Coalition of America (MBCA) has requested that the US Federal Deposit Insurance Corporation (FDIC) extend insurance on all deposits for the next two years, which would immediately halt the outflow of deposits from smaller banks and stabilize the banking industry, according to a Bloomberg report. The MBCA proposed that the banks themselves fund the insurance program by raising the deposit-insurance assessment on lenders who opt to participate in the increased coverage, and the failure to provide this could result in up to 300 banks going under.
The banking industry has been facing risks from uninsured deposit withdrawals, with almost 190 banks at a potential risk of impairment to insured depositors and potentially $300 billion of insured depositors at risk, as revealed by economists' analysis. In the meantime, Representative Tom Emmer has warned the FDIC that its actions to purge legal crypto activity from the US are "deeply inappropriate" and could lead to broader financial instability. Furthermore, the US Federal Reserve announced a review of the supervision and regulation of Silicon Valley Bank in light of its failure, which will be released for public review by May 1.
The MBCA's request to extend deposit insurance is aimed at reducing the risk of bank failures, which could potentially harm the entire banking industry. The proposal to fund the insurance program by raising deposit-insurance assessment on lenders who opt to participate in the increased coverage is a significant move towards ensuring stability in the banking industry. The economists' analysis shows that there is a potential risk to insured depositors if uninsured depositors decide to withdraw their deposits. If this occurs, almost 190 banks would be at risk, and insured depositors could face a potential loss of up to $300 billion.
Representative Tom Emmer's letter to the FDIC Chair raises concerns over reports that the FDIC is "weaponizing recent instability" in the banking sector to "purge legal crypto activity" from the US. Emmer argues that these actions are "deeply inappropriate" and could lead to broader financial instability. This concern over broader financial instability is further highlighted by the Federal Reserve's announcement of a review of the supervision and regulation of Silicon Valley Bank in light of its failure. The review's public release by May 1 shows that the Federal Reserve is taking steps to ensure that the banking industry remains stable and secure.
In conclusion, the MBCA's request for an extension of deposit insurance is an important step towards ensuring stability in the banking industry. The proposal to fund the insurance program by raising deposit-insurance assessment on lenders who opt to participate in the increased coverage could provide banks with the necessary funds to ensure that they can meet the demands of their customers. The concern over broader financial instability, raised by Representative Tom Emmer, and the Federal Reserve's review of the supervision and regulation of Silicon Valley Bank, highlights the need for continued vigilance to ensure the stability and security of the banking industry.
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