US lawmakers are considering the merits of a higher cap on banks’ deposit insurance

WASHINGTON, March 19 (Reuters) – Four prominent US banking lawmakers said on Sunday they would consider whether a higher federal insurance limit for bank deposits was needed to stem a financial crisis caused by an outflow of large, uninsured deposits from smaller and regional banks.

“I think removing the FDIC insurance cap is a good move,” Senator Elizabeth Warren, a Democrat, said on CBS’s Face The Nation program, referring to the Federal Deposit Insurance Corporation’s current limit of 250,000 USD per depositor.

When asked what the new, higher level should be, Warren, a member of the Senate Banking Committee, said: “That’s a question we need to work through. Is it $2 million, is it $5 million? Is it $10 million? Small businesses need to be able to rely on getting their money to do the payroll and pay the utility bills.”

Warren declined to discuss talks she has had with the Biden administration about such a move, but said raising the insurance limit is “one of the options that needs to be on the table now.”

Senator Mike Rounds, a Republican on the Senate Banking Committee, also questioned whether the $250,000 limit, which was raised from $100,000 during the 2008 financial crisis, was still appropriate.

“Maybe that’s not enough,” Rounds told NBC’s Meet the Press.

He added that regional and smaller banks would like some “reassurances” that they can compete with larger banks, and “it’s going to be a couple of months before consumers out there realize that all these banks are stable.”

Republican Representative Patrick McHenry, chairman of the House Financial Services Committee, said he will work to address the adequacy of FDIC deposit insurance, but added that he has not held discussions with Biden administration officials about raising the limit.

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“However, what I’m going to do legislatively and in an oversight capacity is determine whether or not we need to look at the FDIC deposit level,” McHenry told the same CBS program.

During the financial crisis that erupted in 2008, the FDIC temporarily froze all deposits to protect smaller banks.

Pressure on mid-sized and smaller banks from deposit outflows continued on Friday, even as several large banks attempted to deposit $30 billion in First Republic Bank (FRC.N), an institution damaged by the collapse of Silicon Valley Bank (SIVB .O) and Signature Bank (SBNY.O).

Some former officials, including former FDIC chief Sheila Bair, have said regulators may need to repeat a temporary blanket guarantee on all US deposits. Under the Dodd-Frank Financial Reform Act, such a move requires Congress to pass an expedited approval order.

McHenry said he wanted to explore the trade-offs of higher deposit insurance limits, “the moral hazard of taking more risk in the financial sector and also the impact this would have on community banks.”

A spokesman for the US Treasury Department declined to comment. Treasury Secretary Janet Yellen told senators last week that further guarantees for uninsured bank deposits beyond those at SVB and Signature Bank would require a determination of systemic risk by herself, President Joe Biden and “supermajorities” of the Federal Reserve and FDIC boards.

Sen. Chris Van Hollen, a Democrat on the Senate Treasury Committee, told Fox News Sunday that Congress and regulators need to address the $250,000 limit, but not every bank should be “bailed out.”

‚ÄúThere will be questions going forward as to how we handle deposits over $250,000 that are backed here. But what the mechanism would look like, if we do it at all, is still up for debate,” said Van Hollen.

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Reporting by David Lawder in Washington Editing by Nick Zieminski and Matthew Lewis

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