News

Published: Mar 20, 2023
Updated: Mar 20, 2023

Midsize US Banks Request FDIC to Insure Deposits for Two Years

In an attempt to avoid a possible bank run, a coalition of midsize banks in the United States is asking federal regulators to extend FDIC (Federal Deposit Insurance Corporation) insurance to all deposits for the next two years. The group argues that such a guarantee is needed to prevent a wider run on the banks and stabilize the banking sector.

The Mid-Size Bank Coalition of America stated that "doing so will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce chances of more bank failures." The group went on to say that confidence in the banking system as a whole must be immediately restored, as confidence has been eroded in all but the largest banks.

Shift of Deposits to Larger Financial Institutions

Deposits have been shifting towards larger financial institutions seen as "too big to fail." The coalition's proposal comes amid concerns that smaller banks will face increasing difficulties attracting deposits, and that the deposit flight would accelerate should another bank fail.

The group cited remarks by Treasury Secretary Janet Yellen, who stated that the backstops put in place so far will only protect uninsured deposits if regulators find it "necessary to protect the financial system." This category is unlikely to include the smaller banks represented by the MBCA.

Proposed Solution: Banks to Fund Expanded Insurance Program

The Mid-Size Bank Coalition of America proposed that the expanded insurance program should be paid for by the banks themselves, by increasing the deposit-insurance assessment on lenders that choose to participate in increased coverage.

The proposal to extend FDIC insurance to all deposits for the next two years is an attempt to prevent another wave of bank failures, similar to those seen during the 2008 financial crisis. The coalition's request is driven by the need to stabilize the banking sector and avoid the risks associated with bank runs.

Avoiding Another Wave of Bank Failures

The FDIC is a United States government agency that provides insurance to depositors in case a bank fails. Currently, the FDIC insures deposits up to $250,000 per depositor per bank. The extension of the FDIC insurance program is expected to provide a much-needed boost to midsize banks, which have been struggling to compete with larger banks and non- bank lenders.

The proposal by the Mid-Size Bank Coalition of America to extend FDIC insurance to all deposits for the next two years is an attempt to avoid a possible bank run, stabilize the banking sector, and restore confidence in the banking system. The proposal is an attempt to prevent another wave of bank failures and is driven by the need to stabilize the sector and avoid the risks associated with bank runs. The proposed program is expected to provide a much-needed boost to midsize banks, which have been struggling to compete with larger banks and non-bank lenders.