‘Blanket insurance’ of bank deposits is not being discussed, Yellen tells senators

That explanation has not been enough to satisfy small and mid-sized banks, however.

“If policymakers decide to provide unlimited deposit insurance to some institutions, they cannot leave others out—certainly not the community banks that have, as always, operated on a safe and sound basis,” Rebeca Rainey, CEO of the Independent Community Bankers of America, said in a recent statement.

While Yellen ruled out universal blanket deposit guarantees, she appeared to be open to other potential ways to help smaller banks offer additional insurance to large deposits.

One idea volunteered by Democratic West Virginia Sen. Joe Manchin was to create a system where depositors who needed to keep cash in excess of the $250,000 FDIC limit could pay slightly higher bank fees, akin to an insurance premium, in order to secure a higher level of FDIC insurance.

“Shouldn’t I be able to buy or pay a little higher bank fee, to get protection … with a cap maybe at $10 million?” Manchin said to Yellen near the end of her testimony. “We’ve been talking … some senators have been talking back and forth … and I don’t think we should [craft legislation] without you all involved, showing us how to structure that.”

“I think this is very worthwhile, for you and your colleagues to be discussing what’s appropriate here,” Yellen replied. “And we would be more than willing to work with you to think this through.”

She added: “For the moment, we’re trying to stabilize the situation using the tools at our disposal.”

These efforts are starting to bear fruit, Yellen told a bankers group Tuesday. She said that “aggregate deposit outflows from regional banks have stabilized.”

But while the trends are moving in the right direction, the amount of money banks borrowed in the week ending March 15 from the Fed’s discount window set a new record at $153 billion, according to the Fed’s weekly report, a sum that suggests the banking sector is not quite stable yet.

Clarification: This story has been updated to make clear that Yellen made her comment about “blanket insurance” while answering a senator’s question about whether Treasury would circumvent Congress in order to insure all deposits.

Article source: https://www.cnbc.com/2023/03/22/treasury-will-do-whatever-it-takes-to-ensure-savings-remain-safe-yellen-to-tell-senators-.html