Three prominent U.S. lawmakers on banking matters said on Sunday that they would consider a higher federal insurance limit on bank deposits to stem a financial crisis that has resulted in a drain of large, uninsured deposits away from smaller and regional banks.
Sen. Elizabeth Warren, a Democrat, said on CBS' Face The Nation program that they think lifting the FDIC insurance cap is a good move, considering the Federal Deposit Insurance Corporation's $250,000 limit per depositor.
Asked what the new, higher level should be, Warren, a member of the Senate Banking Committee, said: This is a question we have to work through. Is it $2 million or $5 million? Is it $10 million? Small businesses need to be able to pay utility bills and get their money to make payroll. Warren said that an insurance limit hike is one of the options that's got to be on the table right now, because she didn't want to discuss conversations with the Biden administration about such a move. Republican representative Patrick McHenry, chairman of the House Financial Services Committee, said he would work to address the adequacy of FDIC deposit insurance, but he said he had not had any conversations with Biden administration officials about raising the limit.
In an oversight function, McHenry told the CBS program, what I will do is to determine whether or not we need to address the FDIC deposit level.
During the 2008 financial crisis, the FDIC raised the deposit limit to $250,000 from $100,000 and temporarily backed all deposits in order to protect smaller banks.
On Friday, pressure on mid-size and smaller banks from deposit outflows continued despite a move by several large banks to deposit $30 billion into First Republic Bank, an institution rocked by the failure of Silicon Valley and Signature.
Some former FDIC chief Sheila Bair, including the former FDIC chief, said regulators may need to repeat a blanket guarantee on all U.S. deposits. Under the Dodd-Frank financial reform law, such a move requires Congress to pass a resolution of approval on an expedited schedule.
The U.S. Treasury did not respond to requests for comment. Treasury Secretary Janet Yellen told senators last week that further guarantees of uninsured bank deposits beyond SVB and Signature Bank would require a systemic risk determination by her, President Joe Biden and supermajorities of the Federal Reserve and FDIC boards.
McHenry wanted to look at the trade-offs of higher deposit insurance limits, the moral hazard of having more risk taking in the financial sector, and the impact it would have on community banks. McHenry said he was concerned about the impact that further declines of community banks would have on banking competition.
Senator Chris Van Hollen, a Democrat on the Senate Finance Committee, said on Sunday that Congress and regulators need to address the $250,000 limit, but not every bank should be bailed out. There will be a question as to how we deal with deposits over $250,000. The mechanism if we do that at all is something that is up to debate, Van Hollen said.