The Mid-Size Bank Coalition of America (MBCA) has requested that the United States Federal Deposit Insurance Corporation (FDIC) extend insurance on all deposits for the next two years.
The MBCA, a coalition of mid-sized US banks, wrote to federal regulators arguing that the extension of insurance would stabilize the banking industry and reduce the chances of further bank failures. The banks would fund the insurance program by increasing the deposit-insurance assessment on participating lenders.
The MBCA believes that this would immediately halt the exodus of deposits from smaller banks, which would significantly decrease the number of bank failures in the future.
Midsize US banks have requested that the FDIC extend insurance to all deposits for the next two years. The call comes after economists warned that nearly 190 banks are at risk of potential impairment to insured depositors, putting around $300 billion in insured deposits at risk, in the event of uninsured deposit withdrawals.
Mid-Size Bank Coalition want Deposit Insurance
The Mid-Size Bank Coalition of America has sent a letter to the FDIC proposing the banks fund the insurance program themselves by raising the deposit-insurance assessment on lenders who choose to participate in the increased coverage. If the FDIC does not provide any guarantee to the banks, the founder of legal news outlet Crypto Law Lawyer, John Deaton, predicts that up to 300 banks could fail.
Representative Tom Emmer, who is the majority whip in the United States House of Representatives, has raised concerns about reports suggesting that the FDIC is using recent instability in the banking sector as an excuse to remove legal cryptocurrency activity from the United States.
In a letter to FDIC chair Martin Gruenberg on March 15, Emmer stated that such actions are “inappropriate” and could lead to wider financial instability.
Additionally, on March 13, the U.S. Federal Reserve announced that Michael Barr, the vice chair for Supervision, will be leading a review of the regulation and supervision of Silicon Valley Bank in light of its failure. The review is expected to be released to the public by May 1.
Silicon Valley Bank collapsed recently, which was the worst American financial institution failure since 2008. The bank invested too heavily in longer-term mortgage securities with more than 10 years to maturity, and when depositors panicked and withdrew their money, the bank sold those bonds at a loss of $1.8 billion to meet customer withdrawals.
Today, I sent a letter to FDIC Chairman Gruenberg regarding reports that the FDIC is weaponizing recent instability in the banking sector to purge legal crypto activity from the U.S. 👇 pic.twitter.com/fDmaA0XGWv
— Tom Emmer (@GOPMajorityWhip) March 15, 2023
The proposal of MBCA is aimed at preventing another banking crisis, but there is no certainty that it will be implemented. The proposal to extend deposit insurance coverage could bring stability to the banking industry and prevent depositors from fleeing mid-size banks.
The impact of the Mid-Size Bank Coalition of America’s (MBCA) request for the extension of deposit insurance on all deposits for the next two years is uncertain, but it could potentially bring stability to the banking industry and reduce the likelihood of more bank failures.