Yellen says the US is not considering “universal insurance” of bank deposits

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen told lawmakers on Wednesday that the Federal Deposit Insurance Corporation was not considering offering “universal insurance” for bank deposits after the collapse of two prominent U.S. banks this month.

Some banking groups have urged Congress to temporarily guarantee all US bank deposits, a move they say will halt a deeper crisis after the failures of Silicon Valley Bank and Signature Bank.

Speaking before a U.S. Senate subcommittee, Yellen said she believes it is “feasible” to consider changes to the FDIC’s deposit insurance, but that an increase beyond the current $250,000 limit has not been considered.

When a bank failure is considered “a systemic risk, which I believe is a risk of a bank’s infectious outflows, (we) will likely invoke (a) the systemic risk exception, which allows the FDIC to protect all deposits,” Yellen said. Addition section will identify systemic risks on a case-by-case basis.

Yellen said the administration is not considering “anything to do with universal insurance or deposit guarantees”.

Shares in beleaguered First Republic Bank (FRCN), which has lost much of its value since the US banking crisis began on March 8, fell 15.5% to close Wednesday at $13.33 after Yellen’s comments.

Yellen told the Senate Appropriations Subcommittee on Financial Services and General Government that banks across the country were worried about contagion from bank failures, and that President Joe Biden’s administration was focused on stabilizing the banking system.

She said the Silicon Valley bank’s collapse involved “too fast” bank management.

“As far as I know, we’ve never seen deposits run away at the pace we’ve had from Silicon Valley,” Yellen said.

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The FDIC said any losses to the FDIC’s deposit insurance fund due to the bank’s collapse would be recovered through a private assessment of the banks. Yellen said it was “not clear” that banks would pass these costs on to bank customers.

Yellen also said the Treasury Department is working to restore the Financial Stability Oversight Board (FSOC)’s ability to classify non-bank financial institutions as systemically important, subjecting them to stronger regulation.

This reflects fears that financial risks may be transferred to less regulated hedge funds and so-called “shadow banking” institutions.

Editing by Chizu Nomiyama and David Gregorio

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