Insurance premiums.. Do US banks deduct money from accounts to protect deposits?

The US Treasury excluded comprehensive deposit insurance

US Treasury Secretary Janet Yellen told members of the Senate Appropriations Subcommittee that the federal bank regulators are not considering any plans to insure all US bank deposits without congressional approval.

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

In response to a direct question about whether the Treasury Department would circumvent Congress to insure all deposits, Yellen replied, “I haven’t thought about or discussed anything related to universal insurance or all-deposit guarantees.”

Yellen made the comment before senators during a hearing on Capitol Hill considering the Treasury Department’s 2024 budget request.

The statement led to a decline in the stock market and a decline in shares of regional banks.

insurance limit

Congress has broad power to raise the FDIC’s insurance limit, currently set at $250,000 as part of the Dodd-Frank fiscal reforms.

Congress can also suspend the limit temporarily, as it did in 2020 as part of the government’s response to the COVID-19 pandemic.

This time, only a handful of Democrats have suggested publicly that Congress consider raising the cap on all deposits.

Meanwhile, an influential bloc of Republicans in the House of Representatives has already opposed any increase. This makes it difficult to imagine how a bill to raise the limit would bypass the GOP-controlled House of Representatives.

In Washington, emergency deposit guarantees offered to Silicon Valley and Signature have sparked a heated debate about whether big banks that took excessive risks got a private bailout, while smaller ones are forced to grapple with a rush of withdrawals without any special help.

Maine Republican Senator Susan Collins said: “I am deeply troubled, it seems to me, that by guaranteeing all deposits in Silicon Valley you are creating a situation where they are immune to losses … in a way that puts a well-managed community bank at a competitive disadvantage.” So I guess my question to you is, how is that fair?

At the time, Yellen said, the organizers weren’t thinking of awarding anyone banks An advantage over any other bank. At the time, they were considering “the implications for the wider banking system because of the potential for contagion,” she says.

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

Rebecca Rennie, CEO, Independent Community Bankers of America: “If policymakers decide to provide unlimited deposit insurance for some institutions, they can’t leave others — certainly not community banks that have operated, as always, on a safe and sound basis.” .

Insurance premiums.. Do US banks deduct money from accounts to protect deposits?

Insurance premiums

While Yellen has ruled out blanket guarantees on deposits, she seemed open to other potential ways to help smaller banks provide additional insurance for large deposits.

One idea volunteered by Democratic West Virginia Sen. Joe Manchin was to create a system where depositors who need to hold cash over $250,000 can pay a slightly higher bank fee, similar to an insurance premium, for higher insurance than the FBI. insurance.

“Shouldn’t I be able to buy, or pay a slightly higher bank fee, to get protection … with a ceiling of maybe $10 million?” Manchin said.

Yellen replied: “I think that’s very helpful, for you and your colleagues to discuss what’s appropriate here, and we’d be more than willing to work with you to think through that.”

“For now, we are trying to stabilize the situation using the tools at our disposal,” she added.

Yellen told a group of bankers that these efforts are beginning to bear fruit, and said that “the overall deposit outflows from regional banks have stabilized.”

But while the trends are moving in the right direction, the amount of money banks borrowed in the week ending March 15 from the Fed’s discount window hit a new record at $153 billion, according to the Fed’s weekly report, an amount that refers to the sector. The banker is not quite stable yet.

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