The U.S. Is Exploring Measures to Safeguard Bank Deposits if Crisis Grows

The U.S. is in the midst of a critical banking crisis. Over the last couple of weeks, three well-known banks have collapsed, while other smaller ones continue to face liquidity and funding issues. Now, in the midst of all this, U.S. regulators have started exploring measures to guarantee all bank deposits, in case the crisis deepens.

A recent report from Bloomberg revealed, U.S. officials are “currently studying” ways to provisionally expand Federal Deposit Insurance Corporation coverage for all deposits. An alliance of banks is reportedly coming together, contending that the said move is necessary to avert a potential financial crisis.

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Regulators looking to temporarily insure deposits greater than the $250,000 cap

Citing unnamed sources familiar with the matter, Bloomberg reported that the Treasury Department staff are examining if federal regulators have enough emergency authority to provisionally insure deposits greater than the current $250,000 cap on most accounts.

According to sources, one legal framework being considered for expanding FDIC insurance would use the Treasury Department’s power to take emergency action and count on the Exchange Stabilization Fund. Regulators, however, do not yet see the need for such a move. Authorities have already taken measures to help banks keep up with any demands for withdrawals, the sources revealed. That said, they are developing a strategy, out of due diligence if the crisis grows. A Treasury spokeswoman said in a statement,

“Due to decisive recent actions, the situation has stabilized, deposit flows are improving and Americans can have confidence in the safety of their deposits.”

Here it is worth noting that, the Federal Reserve has kept its doors open for banks in distress to seek assistance from it. As reported recently, the agency “stands ready” to provide liquidity to all eligible institutions. In fact, in a week’s window, U.S. banks borrowed a record $165 billion from the Fed Reserve. White House spokesman Michael Kikukawa said,

“We will use the tools we have to support community banks, without directly addressing whether the measure is being studied. Since our administration and the regulators took decisive action last weekend, we have seen deposits stabilize at regional banks throughout the country and, in some cases, outflows have modestly reversed.”

Also Read: Fed ‘Stands Ready’ to Provide Liquidity to Eligible Institutions