Treasury officials exploring ways to temporarily insure all bank deposits: report

The Treasury Department is exploring whether the Federal Deposit Insurance Corp. (FDIC) has the authority to temporarily expand insurance to all bank deposits, Bloomberg News reported.

The FDIC only insures deposits up to $250,000, but a coalition of midsize banks is urging the FDIC to guarantee all deposits for two years to stop the flow of money from small and midsize banks to larger institutions that wealthy depositors see as safer. 

Federal regulators protected all Silicon Valley Bank depositors following a run on the bank, citing risks to the broader financial system. That prompted huge outflows of money from other regional banks that had large amounts of uninsured deposits. 

Treasury Secretary Janet Yellen has said that officials wouldn’t provide the same emergency protections to smaller banks that don’t pose a threat to financial stability, but she planned to clarify her remarks on Tuesday.

“The steps we took were not focused on aiding specific banks or classes of banks,” Yellen was set to tell an American Bankers Association conference.

“Our intervention was necessary to protect the broader U.S. banking system. And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”

It’s not clear whether the FDIC has the authority to bypass the insurance limit, which is set by Congress. Lawmakers this week have discussed the possibility of raising the $250,000 limit or temporarily waiving it, but they’re nowhere near a consensus. 

Sen. Elizabeth Warren (D-Mass.) suggested that the FDIC cap may need to be raised to the millions to ensure employers can make payroll in the event of a bank run. 

The House Freedom Caucus, meanwhile, came out against raising or lifting the cap, arguing that banks “must not be forced to shoulder the costs for bailing out large depositors.”