U.S. Treasury Secretary Janet Yellen has said that if smaller banks face deposit losses that could cause contagion, the federal government could guarantee those deposits. This follows the government’s intervention to protect all deposits from failed banks such as Silicon Valley Bank Signature Bank.
U.S. Government May Back All Deposits If Needed
U.S. Treasury Secretary Janet Yellen has stated in a speech to the American Bankers Association Tuesday that the government will provide additional deposit guarantees in the event of a more severe banking crisis.
Given the failure of several large banks, including Silicon Valley Bank Signature Bank, the government stepped in and guaranteed all deposits beyond the $250,000 limit of Federal Deposit Insurance Corporation (FDIC) coverage. The former Federal Reserve chair explained:
We did not concentrate on aiding specific banks or bank classes. Our intervention was necessary to protect the U.S. banking system. And if smaller institutions face losses from deposit runs that could lead to contagion, similar actions may be required.
“The situation is stabilizing. And the U.S. banking system remains strong,” Yellen asserted.
Nonetheless, based on reports, Treasury Department staff are exploring ways to temporarily extend FDIC insurance to all deposits. Bloomberg reported this Monday.
Last Week, Mid-Size Bank Coalition Of America asked federal regulators to extend FDIC insurance to all deposits for the next two years. “It is critical that we restore depositor confidence before another bank fails, preventing panic and an additional crisis,” according to the group. Furthermore, U.S. Congressman Blaine Luetkemeyer has asked the government to temporarily insure all deposits in banks in order to prevent bank runs.
However, Yellen rejected the idea last week that the government would guarantee all deposits in the event of bank failures.
Do you think the government should guarantee all bank deposits? Let us know what you think in the comments below.
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