Medium-Sized Banks Want More FDIC Protection

America’s midsized banks want more federal protection to prevent runs on deposits.

The Mid-Sized Bank Coalition (MSBC) has reportedly written to federal regulators asking that the Federal Deposit Insurance Corp. (FDIC) extend insurance on all deposits for the next two years, Bloomberg News reported Saturday (March 18).

“Doing so will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce chances of more bank failures,” the letter, seen by Bloomberg, said.

It was written in response to the collapse this month of Signature Bank and Silicon Valley Bank, which triggered a wave of withdrawals from regional banks and deposits into “too-big-to-fail” banking giants like JPMorgan and Bank of America.

PYMNTS has reached out to the MSBC for comment but has not yet received a reply.

“Notwithstanding the overall health and safety of the banking industry, confidence has been eroded in all but the largest banks,” the coalition letter said. “Confidence in our banking system as a whole must be immediately restored,” it said, arguing that the outflows would speed up if another bank collapses.

The coalition also pointed recent remarks by Treasury Secretary Janet Yellen, who told a Senate hearing last week — as noted here — that other banks wouldn’t necessarily get the same rescue that depositors at SVB and Signature got.

In fact, she testified, the government would likely only act in cases where “a failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.”

Bloomberg notes that could leave a lot of MSBC banks out in the cold, which is why the group wants the FDIC to expand its insurance program.

That expansion could be paid for by the banks themselves by increasing the deposit-insurance assessment on banks that want more coverage, the letter said.

This month’s banking crisis began March 8 when Silvergate Capital announced it would liquidate its Silvergate Bank, days after saying in a regulatory filing it had concerns about the future of the business as a “going concern.”

Two days later, SVB jettisoned an earlier plan to raise capital and began looking for a seller. By the end of the day, California’s banking regulator had shuttered the bank and put it under FDIC control in the wake of a run on deposits.

A similar run led to the collapse of Signature Bank two days later, as it too was taken over by regulators. The agency was still seeking a buyer for SVB Sunday, while announcing it had sold Signature to a division of New York Community Bank.