Midsize US banks ask government to protect all deposits for 2 years as SVB contagion fears persist
- The Mid-Size Bank Coalition of America argued the insurance is needed to avoid a wider run on lenders following the collapse of Silicon Valley Bank
- Billionaire investor Warren Buffett is in touch with the Biden’s administration to help contain the banking crisis
A coalition of midsize US banks asked federal regulators to extend FDIC insurance to all deposits for the next two years, arguing the guarantee is needed to avoid a wider run on the banks.
“Doing so will immediately halt the exodus of deposits from smaller banks, stabilise the banking sector and greatly reduce chances of more bank failures,” the Mid-Size Bank Coalition of America said in a letter to regulators seen by Bloomberg News.
The collapse this month of Silicon Valley Bank and Signature Bank prompted a flood of deposits out of regional lenders and into the nation’s largest banks, including JPMorgan Chase & Co. and Bank of America Corp. Customers spooked by the bank failures were taking refuge in firms seen as too big to fail.
“Notwithstanding the overall health and safety of the banking industry, confidence has been eroded in all but the largest banks,” the group said in the letter. “Confidence in our banking system as a whole must be immediately restored,” it said, adding that the deposit flight would accelerate should another bank fail.
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The expanded insurance programme should be paid for by the banks themselves by increasing the deposit-insurance assessment on lenders that choose to participate in increased coverage, the group proposed.
The MBCA’s letter was sent to the Federal Deposit Insurance Corp., the Comptroller of the Currency, the Federal Reserve and Treasury Secretary Janet Yellen.
MBCA members include banks with assets of as much as US$100 billion. There are at least 110 members of the coalition.
“It is imperative we restore confidence among depositors before another bank fails, avoiding panic and a further crisis,” the organisation wrote. “While the cost of deposit insurance is not insignificant, the likelihood of it being needed is much, much smaller should all deposits be temporarily insured.”
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Brent Tjarks, a representative for MBCA, declined to comment.
Meanwhile, Berkshire Hathaway Inc.’s Warren Buffett has been in touch with senior officials in President Joe Biden’s administration in recent days as the regional banking crisis unfolds.
The outreach between Buffett and the administration was described by people familiar with the matter, who asked not to be identified discussing private information. It wasn’t immediately clear what role, if any, the billionaire investor may play to contain the crisis.
Buffett has a long history of stepping in to aid banks in crisis, leveraging his cult investing status and financial heft to restore confidence in ailing firms.
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Bank of America won a capital injection from Buffett in 2011 after its stock plunged amid losses tied to subprime mortgages. Buffett also tossed a US$5 billion lifeline to Goldman Sachs Inc. in 2008 to shore up the bank following Lehman Brothers Holdings Inc.’s collapse.
Representatives for Berkshire Hathaway and the White House didn’t immediately respond to requests for comment. Officials at the US Treasury Department declined to comment.
