Midsize US Banks Ask Regulators to Extend FDIC Insurance to All Deposits for 2 Years Before Another Bank Fails

The Mid-Size Bank Coalition of America has asked federal regulators to extend FDIC insurance to cover all deposits for the next two years. “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 claimed. “It is imperative we restore confidence among depositors before another bank fails, avoiding panic and a further crisis.”

Preventing ‘Panic and Further Crisis’

The Mid-Size Bank Coalition of America (MBCA) has reportedly asked federal regulators to extend Federal Deposit Insurance Corporation (FDIC) insurance to all deposits for the next two years. The MBCA currently represents about 110 banks, including those with assets of about $100 billion.

In a letter to the FDIC, the Comptroller of the Currency (OCC), the Federal Reserve, and Treasury Secretary Janet Yellen, seen by Bloomberg News, the group explained:

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 recent failures of major banks, including Silicon Valley Bank and Signature Bank, have caused many depositors to withdraw their funds from regional banks and transfer them to the largest banks in the country, such as JPMorgan Chase and Bank of America. Customers, concerned about bank failures, are seeking safety in institutions perceived 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 stressed. “Confidence in our banking system as a whole must be immediately restored,” the letter continues, noting that the deposit flight would accelerate should another bank fail.

Their MBCA letter emphasizes:

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 coalition wrote.

However, U.S. Treasury Secretary Janet Yellen said in a Senate hearing on Thursday that not all uninsured deposits will be protected in future bank failures. Meanwhile, Congressman Blaine Luetkemeyer has warned that if the government does not guarantee all bank deposits, “there’s going to be a run” on smaller banks.