US officials are reportedly studying ways to expand deposit insurance coverage to protect depositors and prevent capital from being pulled from smaller banks to supposedly safer-looking heavyweights. The current deposit insurance cap under the Federal Deposit Insurance Corporation (FDIC) stands at $250,000. However, following the collapse of several banks in March, there have been calls to increase that amount.
Organizations such as the Mid-Size Bank Coalition of America have called for the cap to be lifted for the next two years. They argue that expanding the insurance coverage would provide necessary protection to depositors during these uncertain times.
According to a Bloomberg report on March 21, Treasury Department staff members are currently discussing the possibility of the FDIC being able to expand the current deposit insurance beyond the max cap to cover all deposits. The FDIC has reported that domestic U.S. bank deposits totaled $17.7 trillion as of December 31.
However, such a move would ultimately depend on the level of emergency authority federal regulators have and whether the insurance cap can be increased without formal consent from Congress. Bloomberg’s sources indicated that U.S. authorities do not deem such a drastic move necessary at the moment, as recent steps taken by financial regulators are likely to be sufficient. The potential strategy is being considered just in case the current situation worsens.
In response to recent bank collapses, the Federal Reserve rolled out the $25 billion Bank Term Funding Program (BTFP) on March 13 to stem any further contagion. This move by the government is an attempt to maintain stability in the financial system and restore confidence in banks.
Meanwhile, in a March 20 press briefing, White House Press Secretary Karine Jean-Pierre was asked about the federal government’s view on expanding FDIC insurance beyond $250,000. Jean-Pierre emphasized that the government’s focus is on ensuring the stability of the financial system and creating a fair playing field for all banks. She also highlighted that recent actions taken by the government have instilled confidence in the public regarding their deposits, stating that “Americans should be confident of their deposits. We’ll be there when they need them.”
While the current situation may not require such a drastic move, the possibility of expanding deposit insurance coverage beyond the current cap is being considered. The government will continue to monitor the situation and take necessary steps to ensure the stability of the financial system.
