May 31, 2023

Brighton Journal

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Hard-line US Republicans oppose bank deposit guarantees that exceed the $250,000 limit

By David Lauder

WASHINGTON (Reuters) – Hardline House Republicans vowed on Monday to oppose any blanket federal guarantee for bank deposits above the current $250,000 limit, throwing up a major barrier to a key tool regulators could use if bank operations re-emerge as a financial trust. wobbling.

The House Republican Freedom Caucus said in a statement that the Fed “must untie” the extraordinary financing facility it created on March 12 that allows banks to increase borrowing from the Fed to cover deposit outflows.

“Any blanket guarantee on all bank deposits, whether implied or explicit, sets a dangerous precedent that simply encourages irresponsible future behavior to be paid for by those who have not stepped in to abide by the rules,” the group said.

Some bankers and commercial banking groups have asked for blanket guarantees from the Federal Deposit Insurance Corporation (FDIC) to counter the crisis that erupted earlier this month from the failure of the Silicon Valley bank. The turmoil has been marked by uninsured commercial depositors fleeing the community’s smaller, regional lenders towards larger banks that are seen as “too big to fail”.

The Alliance of American Midsize Banks said in a letter to US Treasury Secretary Janet Yellen and key regulators that they should extend the FDIC’s insurance to all deposits for two years to “restore confidence among depositors before another bank falls,” echoing a similar move made during the financial crisis that erupted in 2008. The group has been identified as a political action committee by the government transparency group

Depositors at small, securely run banks should have access to the same guarantees as uninsured depositors at SVB and Signature Bank, Rebecca Romero Rainey, president of the Independent Community Bankers Association, said in a statement.

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Such a move, also recommended last week by former FDIC chair Sheila Bear, was quickly implemented in 2008 but now requires congressional approval in a streamlined resolution process — a change made in the 2010 Dodd-Frank financial reform law.

Bloomberg News reported Monday, citing people familiar with the matter, that US officials were considering ways to temporarily expand FDIC coverage to all deposits.

Difficulty agreeing

With at least 37 members of the Freedom Caucus in the closely divided but Republican-controlled House of Representatives, the secretive group of conservative Republicans could make passage difficult, especially as tensions simmer over a debt-ceiling showdown with Democrats.

Paul Kubik, a former Federal Insurance Corporation, International Monetary Fund and Federal Reserve official, said the Fed’s actions to provide liquidity were helping calm markets and bank customers, but pressures from widening interest rate mismatches between bank deposits, bonds and loans on banks’ books will continue. .

“My view is that this could be a lull,” Kubik, now a senior fellow at the American Enterprise Institute, said of the relative quiet on Monday.

He added that operations could re-emerge if another bank defaulted, and if the institution was large enough, regulators would again declare the systemic risk exception and insure its uninsured deposits.

US officials acknowledge volatility in the market, including another big drop in shares of First Republic Bank, but say the flow of deposits from many banks has leveled off or reversed — a sign that the need for emergency action may be diminishing.

After $30 billion in deposits by large First Republic banks last week, a US official said discussions were continuing with banks and other private sector players who were “looking for ways to provide both capital and deposits or looking into potential transactions in the banking sector, Because they are confident in the ability of the banking sector to withstand.

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“Given the stability of deposits and the fact that many institutions have liquidity to meet needs, uninsured depositors if they decide to leave, we feel better about the current situation, but of course we will remain vigilant during the next week.”

(Reporting by David Lauder; Additional reporting by Andrea Shalal; Editing by Lincoln Feast.)