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WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen told lawmakers on Wednesday that the Federal Deposit Insurance Corporation (FDIC) was not considering providing “blanket insurance” for banking deposits following the collapse of two prominent U.S. banks this month.
Some banking groups have urged Congress to temporarily guarantee all U.S. bank deposits, a move they say will stem a deeper crisis after the failure of Silicon Valley Bank and Signature Bank (NASDAQ:SBNY).
Yellen, speaking before a U.S. Senate subcommittee, said she believed it was “worthwhile” to look at changes to FDIC deposit insurance, but that increasing it beyond the current $250,000 limit was not being considered.
When a bank failure “is deemed a systemic risk, which I think of as the risk of a contagious bank run, (we) are likely to invoke (a) systemic risk exception, which permits the FDIC to protect all deposits,” Yellen said, adding the department will determine systemic risks on a case-by-case basis.
Yellen said the administration was not considering “anything having to do with blanket insurance or guarantees of deposits.”
Shares in beleaguered First Republic Bank (NYSE:FRC), which has lost much of its value since the U.S. banking crisis started on March 8, dropped 15.5% to end Wednesday at $13.33 following Yellen’s remarks
Yellen told the Senate’s Appropriations Subcommittee on Financial Services and General Government that banks nationwide were worried about contagion from the bank failures, and that President Joe Biden’s administration was focused on stabilizing the banking system.
She said the collapse of Silicon Valley Bank involved an “overwhelmingly rapid” bank run.
“To the best of my knowledge, we’ve never seen deposits flee at the pace that they did from Silicon Valley Bank,” Yellen said.
Any losses to the FDIC’s deposit insurance fund due to the bank collapses will be recovered by a special assessment on banks, the FDIC has said. Yellen said it was “not obvious” that banks would pass those costs on to bank customers.
Yellen also said the Treasury Department was working to restore the Financial Stability Oversight Council’s (FSOC) ability to designate non-bank financial institutions as systemically important, subjecting them to stronger regulations.
This reflects concerns that financial risks may be migrating to less-regulated hedge funds and so-called “shadow banking” institutions.
