Mid-sized banks seek unlimited FDIC backstop as bank run fears mount

A coalition of medium-sized US banks is calling on the government to insure all deposits for the next two years, in the wake of Silicon Valley Bank’s bailout that insured all of the company’s deposits, regardless of size.

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

  • “This will immediately stop the exodus of deposits from smaller banks, stabilize the banking sector and significantly reduce the likelihood of more bank failures,” Bloomberg said in the letter.
  • Tesla CEO Elon Musk also endorsed the idea in a Twitter message early Saturday and said the move was necessary to “stop bank runs”.

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

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

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

What we’re looking at: Whether Washington is heeding growing calls to broaden FDIC deposit protection. The California Democratic Rep. Ro Khanna is preparing to introduce legislation that will lift the agency’s coverage limit, Dealbook reported Saturday.

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