Mid-sized banks seek unlimited FDIC bailout as fears of bank runs grow

A coalition of mid-sized U.S. banks is calling on the government to insure all deposits for the next two years, following Silicon Valley Bank’s bailout, which insured all of the company’s deposits regardless of size.

Driving news: The Mid-Size Bank Coalition of America sent a letter to regulators arguing that a temporary suspension of the FDIC’s deposit insurance cap is necessary to help smaller banks survive the current banking crisis, Bloomberg reported.

  • “Doing so will immediately stem the flow of deposits from small banks, stabilize the banking sector and greatly reduce the potential for bank failure,” the letter said, according to Bloomberg.
  • Tesla CEO Elon Musk also supported the idea a Twitter post early Saturday, saying the move was necessary to “stop a run on the banks.”

Why it matters: Following the sudden collapse of Silicon Valley Bank and New York’s Signature Bank, the focus is on banks that may also be vulnerable to a sudden outflow of deposits.

  • The FDIC currently insures deposits up to $250,000, although the agency’s decision to protect SVP and Signature depositors suggests a broader willingness to support customer funds.
  • Bloomberg also separately reported that billionaire investor Warren Buffett was in contact with the White House, fueling speculation that he could offer financial support to regional banks.

Recipients: According to Bloomberg, the MBCA sent a letter to Treasury Secretary Janet Yellen, the FDIC, the Comptroller of the Currency and the Fed.

What we watch: Will Washington respond to the growing clamor to expand FDIC deposit protection. Representative Ro Khanna, Democrat of California, is preparing to introduce legislation that would eliminate the agency’s coverage cap, Dealbook reported Saturday.

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