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Mar 22, 2023
Odds Improving for Congress to Strike a Deal on FDIC Cap, Key US Senator Says
(Bloomberg) -- Senate Banking Committee Chairman Sherrod Brown says prospects are improving for legislation lifting the Federal Deposit Insurance Corp. cap, as senators discuss several ideas ahead of a key hearing next week on the failures of Silicon Valley Bank and Signature Bank.
“There seems to be more commonality about what to do with FDIC than there was four or five days ago,” Brown told reporters Tuesday evening. “By our hearing next week, we may have some clarifying thoughts that there can be some consensus.”
The Banking Committee is scheduled to hear from FDIC Chair Martin Gruenberg, Fed Vice Chair for Supervision Michael Barr, and Nellie Liang, the Treasury undersecretary for domestic finance.
The idea of boosting the cap seems to have tentative support from Majority Leader Chuck Schumer, who said raising the $250,000 limit is “a serious proposal” that would “strengthen smaller banks.” Treasury Secretary Janet Yellen told senators Wednesday that a move to back all bank deposits with FDIC insurance is “not something that we have looked at” in the administration.
Brown told an American Bankers Association Conference Wednesday that FDIC insurance would be among the issues discussed on Capitol Hill in the coming weeks.
“We’ll examine deposit insurance coverage issues. We’ll look at the role of social media. We’ll consider legislation to strengthen guardrails and I’ll continue pressing regulators to do a full review of those two bank failures and what is happening across the country,” Brown said. “I think we could find some bipartisan solutions, perhaps on FDIC changes.”
Brown said Tuesday that proposals include raising the insurance cap, eliminating the cap permanently or temporarily, and creating a different insurance category for businesses. The brunt of any additional costs would have to be paid for “by the big guys,” Brown said, meaning larger banks and larger depositors.
Brown remains skeptical that Republicans, many of whom have blamed supervisors and bank management for the failures at SVB and Signature, will agree to tighter bank regulations. Several Democrats point to a 2018 law rolling back banking regulations as a major contributor to the turmoil.
“Republicans need to play ball on this,” he said.
Senator Tim Scott, the top Republican on the committee, said blaming the 2018 law is a “red herring.” Regulators, he told the bankers’ conference, had the authority to do their jobs but didn’t. Scott blamed poor management at Silicon Valley Bank, a lack of supervision and inflation he said was caused by President Joe Biden.
Republicans have differed on increasing the FDIC insurance cap.
Some, like Senator James Lankford of Oklahoma, have complained that the administration’s decision to backstop depositors at Silicon Valley and Signature banks has set up incentives for large depositors to abandon smaller banks for those deemed “too big to fail.”
House Financial Services Chairman Patrick McHenry, a North Carolina Republican, said Wednesday that it’s too early to tell whether legislation will be necessary. Raising or eliminating the insurance cap, he said, could have serious consequences including encouraging riskier behavior by banks and fueling bank consolidation.
Republican Senator Mitt Romney has suggested increasing the FDIC cap but having the larger depositors pay for the increased insurance. And on Tuesday Democrat Joe Manchin floated giving those uninsured depositors the option of paying a fee for more FDIC insurance, likening it to life insurance.
Others, like Republicans Rand Paul and Josh Hawley, have opposed increasing the insurance cap.
Senator Elizabeth Warren, meanwhile, is demanding that higher FDIC insurance limits be tied to tighter regulations for banks. On Wednesday, Warren and 11 other senators wrote a letter demanding Barr increase regulations on banks with $100 billion to $250 billion in assets.
“The fall of both SVB and Signature, the near-crash of First Republic, and the struggles of other regional banks shed new light on the systemic importance of banks with assets totaling between $100 and $250 billion,” they wrote.
In the meantime, Brown said he’s counting on Barr to use the Fed’s existing authority to strengthen capital and liquidity requirements and stress tests.
--With assistance from Christopher Condon.
(Updates with Schumer and Yellen in fourth paragraph)
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