WASHINGTON, March 20 (Reuters) – Hard-line Republicans in the House of Representatives vowed on Monday to oppose any universal federal guarantee of bank deposits above the current $250,000 cap. Financial confidence falters.
The Republican House Freedom Caucus said in a statement that the Federal Reserve should “abandon” its extraordinary funding facility on March 12, which allows banks to increase their borrowing from the Federal Reserve.
“Any universal guarantee on all bank deposits, whether implicit or explicit, sets a dangerous precedent that encourages future reckless behavior that is not compensated for by those who do not follow the rules,” the committee said.
Some bankers and banking trade groups have asked for global guarantees from the Federal Deposit Insurance Corp. (FDIC) to deal with the crisis triggered earlier this month by the failure of Silicon Valley Bank ( SIVB.O ). The surge has been marked by an exodus of uninsured business depositors from smaller community and regional lenders to the biggest banks deemed “too big to fail.”
In a letter to U.S. Treasury Secretary Janet Yellen and key regulators, the Alliance of Mid-Sized Banks of America said the FDIC should extend the insurance of all deposits by two years to “restore confidence among depositors before another bank fails.” The financial crisis that erupted in 2008. The group was identified as a political action group by the government transparency group OpenSecrets.org.
Rebecca Romero Rainey, president of the Independent Community Bankers Association said in a statement Depositors in safely conducted small banks should receive the same guarantee as uninsured depositors in SVB and Signature Bank.
Such a move, suggested last week by former FDIC Chair Sheila Payer, was expedited in 2008, but now requires congressional approval in a streamlined resolution process — something that was replaced in the 2010 Dodd-Frank Financial Reform Act.
U.S. officials are exploring ways to temporarily expand FDIC coverage to all deposits, Bloomberg News reported Monday, citing people familiar with the matter.
Consent difficulty
With at least 37 independent caucuses in the closely divided but Republican-controlled House of Representatives, a secretive caucus of conservative Republicans could make passage difficult, especially as tensions run high with Democrats over the debt ceiling impasse.
Paul Kupiec, a former FDIC, International Monetary Fund and Fed official, said the central bank’s measures to provide liquidity are helping to calm markets and bank customers, but pressures from a growing interest rate mismatch between bank deposits and bonds and loans on bank books will continue. .
“My view is that it could be a lull,” Kubek, now a senior fellow at the American Enterprise Institute, said Monday of the relative calm.
Flows could re-emerge if another bank falters, and if the firm is good enough, regulators will again declare a formal risk exemption and guarantee its uninsured deposits, he added.
U.S. officials acknowledge volatility in the market, including another big drop in First Republic Bank ( FRC.N ) shares, but say deposit outflows from many banks have stabilized or reversed — a sign that the need for emergency action may be waning.
Following $30 billion in deposits by major banks in the Republic since last week, a US official said, “Discussions are continuing with banks and other private sector actors looking at ways to provide both capital, deposits or potential transactions in the banking sector because they have confidence in the banking sector’s resilience.”
“We feel good about where things are now, given the stability of deposits and liquidity for many institutions to meet the requirements, if uninsured depositors decide to leave, but we are definitely going to be vigilant in the next week,” the official added.
Reporting by David Lauder, additional reporting by Andrea Shallal; Editing Lincoln Feast.
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