U.S. Secretary of the Treasury testifies before the Senate Appropriations Subcommittee on Financial Services March 22, 2023 in Washington, DC.
Win Mcnamee | Getty Images
WASHINGTON — Federal bank regulators aren’t considering any plans to insure all U.S. bank deposits, Treasury Secretary Janet Yellen told members of a Senate Appropriations subcommittee on Wednesday.
Several banking groups and consumer advocates have called for some type of a universal deposit guarantee after the federal government refunded a lot of the uninsured deposits at two banks that collapsed earlier this month, California-based Silicon Valley Bank and Latest York-based Signature Bank.
“I even have not considered or discussed anything having to do with blanket insurance or guarantees of all deposits,” Yellen told senators during a hearing on Capitol Hill to contemplate the Treasury Department’s 2024 budget request.
The comments helped to fuel a decline within the stock market, and a drop in regional bank shares.
The deposit guarantees for SVB and Signature set off a fierce debate in Washington over whether big banks that had taken excessive risks were getting a special bailout, while smaller banks were being forced to confront a rush of withdrawals — triggered by public fears in regards to the big banks — with none special help.
“I’m very troubled,” said Maine Republican Sen. Susan Collins. “It seems to me, by guaranteeing the entire deposits [at SVB] that you simply’re making a situation where they’re immune from losses … in a way that puts the well managed community bank at a competitive drawback. So I assume my query to you is, how is that this fair?”
Yellen said that on the time, regulators weren’t fascinated about giving one bank a bonus over another bank. On the time, they were fascinated about “the implications for the broader banking system due to the contagion potential,” she said.
That explanation has not been enough to satisfy small and mid-sized banks, nevertheless.
“If policymakers resolve to offer unlimited deposit insurance to some institutions, they can not leave others out—actually not the community banks which have, as at all times, operated on a secure and sound basis,” Rebeca Rainey, CEO of the Independent Community Bankers of America, said in a recent statement.
While Yellen ruled out universal blanket deposit guarantees, she gave the impression to be open to other potential ways to assist smaller banks offer additional insurance to large deposits.
One idea volunteered by Democratic West Virginia Sen. Joe Manchin was to create a system where depositors who needed to maintain money in excess of the $250,000 FDIC limit could pay barely higher bank fees, akin to an insurance premium, with a view to secure a better level of FDIC insurance.
“Shouldn’t I give you the chance to purchase or pay a bit higher bank fee, to get protection … with a cap possibly at $10 million?” Manchin said to Yellen near the tip of her testimony. “We have been talking … some senators have been talking forwards and backwards … and I do not think we should always [craft legislation] without you all involved, showing us how you can structure that.”
“I believe this may be very worthwhile, for you and your colleagues to be discussing what’s appropriate here,” Yellen replied. “And we’d be greater than willing to work with you to think this through.”
She added: “For the moment, we’re attempting to stabilize the situation using the tools at our disposal.”
These efforts are beginning to bear fruit, Yellen told a bankers group Tuesday. She said that “aggregate deposit outflows from regional banks have stabilized.”
But while the trends are moving in the appropriate direction, the amount of cash banks borrowed within the week ending March 15 from the Fed’s discount window set a recent record at $153 billion, in keeping with the Fed’s weekly report, a sum that means the banking sector shouldn’t be quite stable yet.
