Hard-line US Republicans oppose bank deposit guarantees that exceed the $250,000 limit

WASHINGTON (Reuters) – Hardline House Republicans pledged on Monday to oppose any blanket federal guarantee for bank deposits over the current $250,000 limit, throwing up a major barrier to a key tool that regulators could deploy in the event of a resurgence in bank operations. With fluctuating financial confidence.

The House Republican Freedom Caucus said in a statement that the Fed “must untie” the extraordinary financing facility it created on March 12 that allows banks to increase borrowing from the Fed to cover deposit outflows.

“Any blanket guarantee on all bank deposits, whether implied or explicit, sets a dangerous precedent that simply encourages irresponsible future behavior to be paid for by those who have not stepped in to abide by the rules,” the group said.

Some bankers and banking trade groups have asked for blanket guarantees from the Federal Deposit Insurance Corporation (FDIC) to counter the crisis that erupted earlier this month due to the failure of Silicon Valley Bank (SIVB.O). The turmoil has been marked by uninsured commercial depositors fleeing the community’s smaller, regional lenders towards larger banks that are seen as “too big to fail”.

The Alliance of Midsize Banks in America said in a letter to US Treasury Secretary Janet Yellen and key regulators that they should extend FDIC insurance to all deposits for two years to “restore confidence among depositors before another bank goes down,” echoing a similar move during the financial crisis that erupted. in 2008. The group was identified as a political action committee by the government transparency group OpenSecrets.org.

Rebeca Romero Rainey, President, Independent Community Bankers Association he said in a statement Depositors at small banks should securely receive the same guarantees as uninsured depositors at SVB and Signature Bank.

Such a move, also recommended last week by former FDIC chair Sheila Bear, was quickly implemented in 2008 but now requires congressional approval in a streamlined resolution process — a change made in the 2010 Dodd-Frank financial reform law.

Bloomberg News reported Monday, citing people familiar with the matter, that US officials were considering ways to temporarily expand FDIC coverage to all deposits.

Difficulty agreeing

With at least 37 members of the Freedom Caucus in the closely divided but Republican-controlled House of Representatives, the secretive group of conservative Republicans could make passage difficult, especially as tensions simmer over a debt-ceiling showdown with Democrats.

Paul Kubik, a former Federal Insurance Corporation, International Monetary Fund and Federal Reserve official, said the Fed’s actions to provide liquidity were helping calm markets and bank customers, but pressures from widening interest rate mismatches between bank deposits, bonds and loans on banks’ books will continue. .

“My view is that this could be a lull,” Kubik, now a senior fellow at the American Enterprise Institute, said of the relative quiet on Monday.

He added that operations could re-emerge if another bank defaulted, and if the institution was large enough, regulators would again declare the systemic risk exception and insure its uninsured deposits.

US officials acknowledge volatility in the market, including another big drop in First Republic Bank (FRC.N) shares, but say the inflow of deposits from many banks has leveled off or reversed — a sign that the need for emergency action may be diminishing.

After $30 billion in deposits by large First Republic banks last week, a US official said discussions were continuing with banks and other private sector players who were “looking for ways to provide both capital and deposits or looking into potential transactions in the banking sector, Because they trust the banking sector’s resilience.”

“Given the stability of deposits and the fact that many institutions have liquidity to meet needs, uninsured depositors if they decide to leave, we feel better about the current situation, but of course we will remain vigilant during the next week.”

(Reporting by David Lauder) Additional reporting by Andrea Shalal; Edited by Lincoln Feast.

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