The FDIC and Fed are looking at ways the US government can guarantee all $17 trillion in bank deposits in case the financial crisis worsens.
The United States government is considering ways to guarantee bank deposits if the current banking crisis worsens. The Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve are reportedly exploring a possible guarantee of all US bank deposits. Officials from both parastatals embarked on this scheme on the advice of a banking coalition that he considered it necessary to avoid a financial crisis.
This development could also mean that the FDIC and Federal Reserve are looking to guarantee a whopping $17 trillion in deposits. Both independent government agencies argue that taxpayers should not be paying for the current banking crisis. However, the feasibility of the proposed bank deposit guarantee scheme remains to be demonstrated.
Treasury Department officials are reviewing federal regulators’ emergency authority to temporarily insure deposits above the current limit. This limitation is set at $250K and applies to most accounts. As it is, the only way federal regulators can guarantee deposits above $250,000 is with the formal consent of a sharply divided legislature.
US bank deposit guarantee seen as a contingency measure
According to internal sources, the authorities still do not consider the measure necessary. The reason is that regulators moved to help banks meet withdrawal demands earlier this month. The ongoing schedule to guarantee bank deposits is a contingency measure in case things get out of hand.
White House spokesman Michael Kikukawa recently addressed the development. Neither confirming nor denying the reports that a tax study is underway, Kikukawa explained:
“We will use the tools we have to support community banks. Since our administration and regulators took decisive action last weekend, we have seen deposits stabilize at regional banks across the country, and in some cases, outflows have reversed modestly.”
However, government concern still abounds amid calls by midsize banks for more substantial intervention after the collapse of three banks. Just this month, Silicon Valley Bank (SVB) and Signature Bank filed for bankruptcy after uninsured depositors withdrew their funds. In addition, a fourth bank, First Republic Bank, is struggling to stay afloat. First Republic shares fell 47% on Monday, underscoring a March stock drop of over 90%.
The Coalition of Big Banks in the USA rushes to the aid of the First Republic
However, as the beleaguered bank teeters on the brink, several large banks seek to redeem the First Republic. A coalition of banking giants led by JPMorgan (NYSE: JPM) has pledged $30 billion to prop up the San Francisco-based bank. Furthermore, this banking group is also devising a sustainable plan to ensure that First Republic remains solvent and operational. The JP Morgan-led banking coalition provided insight into its rationale in a statement that read:
“This action by America’s largest banks reflects their trust in First Republic and in banks of all sizes, and demonstrates their overall commitment to helping banks serve their customers and communities.”
On the other hand, analysts believe that the banking crisis could trigger a suspension of rate hikes by the Federal Reserve.
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Tolu is a Lagos-based blockchain and cryptocurrency enthusiast. He likes to demystify the crypto stories down to the basics so that anyone anywhere can understand them without too much prior knowledge. When he’s not up to his neck in crypto-stories, Tolu likes music, loves to sing, and is an avid movie buff.
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