Mid-sized US banks ask government to protect all deposits: Report

The recent failures of Silicon Valley Bank and Signature Bank have caused a crisis of confidence in the industry. PHOTO: REUTERS

SAN FRANCISCO – A coalition of mid-sized US banks has asked federal regulators to guarantee all of their customers’ deposits for two years, even above the usual US$250,000 (S$335,490) limit, to avoid contagion after Silicon Valley Bank’s collapse, Bloomberg reported on Saturday.

The measure would “immediately halt the exodus of deposits from smaller banks, stabilise the banking sector and greatly reduce chances of more bank failures”, the Mid-Size Bank Coalition of America (MBCA) argued in a letter to authorities, according to the report.

The recent failures of Silicon Valley Bank (SVB) and Signature Bank have caused a crisis of confidence in the industry.

Many customers of similarly sized banks have withdrawn their money and deposited it with larger institutions, such as JPMorgan Chase or Bank of America, which are considered too big for the government not to bail them out should they face collapse.

Last week, the First Republic Bank, which serves mainly high net worth clients, saw its stock market valuation melt by 80 per cent amid fears it would become the next domino to fall. Based in San Francisco, it is the 14th largest US bank by assets.

Currently, in the United States, deposits are protected by the banking regulator, the Federal Deposit Insurance Corporation (FDIC), up to US$250,000.

“Notwithstanding the overall health and safety of the banking industry, confidence has been eroded in all but the largest banks,” the coalition said, according to Bloomberg.

In particular, it called on the FDIC, the Federal Reserve and Treasury Secretary Janet Yellen to ensure that confidence is “immediately restored”.

The group of banks is proposing to finance this measure themselves by increasing the amount of contributions they already pay to the FDIC to guarantee deposits.

On Thursday, 11 major US banks pledged to deposit a total of US$30 billion in First Republic accounts.

Bank of America, Citigroup, JPMorgan Chase and eight other institutions hope to show their confidence in the nation’s banking system, according to a joint statement.

The coalition and the authorities could not be immediately reached for comment by AFP. AFP

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