• Treasury Secretary Janet Yellen is not considering a plan to guarantee all bank deposits without congressional approval after the collapse of Silicon Valley Bank and Signature Bank, she told senators.
  • Yellen testified before a Senate Appropriations Subcommittee, where she faced questions about the stability of the US banking sector in the wake of the failures of Silicon Valley Bank and Signature Bank.
  • The amount of money borrowed from the Fed’s discount window hit a record in the week ended March 15, with many banks still worried they could face a rush of withdrawals.

The US Secretary of the Treasury testifies before the Senate Appropriations Subcommittee on Financial Services on March 22, 2023 in Washington, DC.

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WASHINGTON – Federal bank regulators are not considering a plan to insure all U.S. bank deposits without congressional approval, Treasury Secretary Janet Yellen told members of a Senate appropriations subcommittee on Wednesday.

Several banking groups and consumer advocates have called for some form of universal deposit guarantee after the government returned most of the uninsured deposits at California-based Silicon Valley Bank and New York-based Signature Bank, two banks that collapsed earlier this month.

In direct response to a question about whether the Treasury would block Congress from insuring all deposits, Yellen replied, “I have not considered or discussed anything related to blanket insurance or guaranteeing all deposits.”

Yellen made the comments to senators during a hearing on Capitol Hill to consider the Treasury Department’s 2024 budget request.

The statement spurred a plunge in the stock market, and a decline in regional bank shares.

Congress has broad authority over FDIC insurance limits, currently set at $250,000 as part of Dodd-Frank financial reform. Congress can also temporarily suspend the limits, as it did in 2020 as part of the government’s response to Covid-19.

At this time, only a few Democrats have publicly suggested that Congress consider raising the limit on all deposits. A dominant bloc of House Republicans, meanwhile, has Get out against any growth already. That makes it hard to imagine how a bill to raise the limits would pass the GOP-controlled House.

In Washington, SVB and the emergency deposit guarantees signed by SVB have sparked a fierce debate over whether big banks that took on too much risk got a special bailout, while smaller institutions are being forced to deal with a rush of withdrawals — fueled by public fears. Big banks – without any special help.

“I’m very distressed,” said Sen. Susan Collins, Republican of Maine. “It seems to me, by guaranteeing all deposits [at SVB] That you’re creating a situation where they’re immune to losses… in a way that puts well-run community banks at a competitive disadvantage. So I guess my question to you is, how is that fair?”

Yellen said that at the time, regulators weren’t thinking of favoring one bank over another. At the time, they were “thinking about the impact on the broader banking system because of the contagion potential,” he said.

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However, this explanation was not enough to satisfy the small and medium-sized banks.

“If policymakers decide to provide unlimited deposit insurance to some institutions, they cannot exclude others—certainly not community banks that have always been, safely and soundly operated,” Rebecca Rainey, CEO of Independent Community Bankers of America, said in a recent statement. .

While Yellen rejected universal blanket deposit guarantees, she seemed open to other possible ways to help small banks offer additional insurance for large deposits.

An idea floated by Democratic West Virginia Sen. Joe Manchin was to create a system where depositors holding more than the $250,000 Federal Deposit Insurance Corp. limit in cash could pay a slightly higher bank fee, similar to an insurance premium. Protected by an advanced level of FDIC insurance.

“Couldn’t I just buy or pay a little more bank fees, to have protection… a cap maybe $10 million?” Manchin told Yellen toward the end of his testimony. “We’re talking … some senators are talking over and over again … and I don’t think we should [craft legislation] We’re showing you how to structure it, without involving all of you.”

“I think it’s very worthwhile, that you and your colleagues are discussing what’s appropriate here,” Yellen replied. “And we’d be willing to work with you to figure it out.”

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He added: “At the moment, we are trying to stabilize the situation using the tools at our disposal.”

Those efforts are beginning to bear fruit, Yellen told a group of bankers on Tuesday. He said that “overall deposit outflows from regional banks have stabilized.”

But while the trend is heading in the right direction, the amount of money banks borrowed from the Fed’s discount window set a record at $153 billion in the week ended March 15, according to the Fed’s weekly report, a sum that suggests the banking sector is still not quite stable.

Clarification: This story has been updated to clarify that Yellen made her comments about “blanket insurance” when responding to a senator’s question about whether the Treasury would block Congress from insuring all deposits.

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