Midsize Banks to Feds: Insure All Our Deposits for Two Years

AP Photo/Jeff Chiu

A coalition of midsize banks sent a letter to Treasury Secretary Janet Yellen, the Federal Deposit Insurance Corporation (the FDIC), the Comptroller of the Currency, and the Federal Reserve requesting that the FDIC insure all their deposits for the next two years, according to Bloomberg.

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The request comes amidst a banking crisis that started earlier this month with the collapse of Silicon Valley Bank (SVB) and then Signature Bank. The group wrote:

“Doing so [insuring all deposits] will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce chances of more bank failures,” the Mid-Size Bank Coalition of America [MBCA] said in a letter to regulators seen by Bloomberg News.

The bank runs have created turmoil on Wall Street, with fears running high that we are reliving the dark days of 2007-2008 when the entire banking system came under duress. Investment giants like Lehman Brothers were shuttered forever, while others were bailed out by the government. Resentments still linger today among many who feel the government unfairly picked winners and losers, while taxpayers footed the bill.

Similar sentiments abound today, with many asking, “why should we retroactively insure deposits at a failed bank?” It’s a good question.

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The crisis caused many depositors to take their money from regional lenders and move it to larger banks like Bank of America and J.P. Morgan which are considered “too big to fail.”

The group continued:

“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.

The expanded insurance program would be paid for by the banks themselves by increasing the deposit insurance assessment on lenders that choose to participate in increased coverage, the MBCA proposed. What they don’t mention is those costs would presumably be passed on to customers in the form of higher fees.

Once again, South Park was prescient, joking about banks wiping out clients’ deposits in 2021:

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The MBCA, which includes 110 members—with some banks worth as much as $100 billion—continued their plea:

It is imperative we restore confidence among depositors before another bank fails, avoiding panic and a further crisis. 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.

The Treasury Department, the FDIC, the Federal Reserve, and MBCA itself all refused to respond to Bloomberg’s request for comment, although Deputy US Treasury Secretary Wally Adeyemo said Friday that deposits have begun to stabilize at small- and medium-sized banks and even “modestly reverse” in some cases.

There’s plenty of blame being thrown around for the fiasco—was it Donald Trump’s fault because he eased some regulatory requirements for midsize banks? (The answer is no. He’s been out of office for over two years. This is Joe Biden’s ship now.) Was it the fault of woke bankers who cared more about ESG than risk management? (There is some evidence for this, yes.) Was it too much regulation, or not enough regulation?

My view is that Joe Biden’s insane spending spree is the root cause. The massive inflation that followed caused the Fed to repeatedly raise interest rates, which many of the long-term bonds SVB had invested in worthless—and suddenly, they were out of business. That doesn’t excuse their own failed risk management policies, but the spending which caused the inflation is still the fundamental issue.

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The question now is, how will the government respond to MBCA’s pleas?

The opinions expressed by contributors are their own and do not necessarily represent the views of RedState.com.

See also:

Silicon Valley Bank Spent $74 Million on Black Lives Matter and Social Justice Causes

Gavin Newsom Praises Biden’s Backing of SVB Customer Deposits, Forgets to Mention He Was a Client

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