One of the top Republicans on the House Financial Services Committee suggested on Tuesday that the United States should begin temporarily insuring every bank deposit in the country as a way to build up confidence in the national banking system after the collapse of Silicon Valley Bank over the weekend.
Rep. Blaine Luetkemeyer (R-MO) said the move would help smaller banks navigate the fallout of the SVB collapse as well as help shore up trust in the U.S. financial system, according to Politico. Luetkemeyer’s proposal would build on efforts by the Biden administration and other regulators that have already begun insuring deposits at SVB and Signature Bank, which also collapsed.
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“If you don’t do this, there’s going to be a run on your smaller banks,” Luetkemeyer told the outlet. “Everyone’s going to take their money out and run to the JPMorgan’s and these too-big-to-fail banks, and they’re going to get bigger, and everybody else is going to get smaller and weaker, and it’s going to really be bad for our system.”
Luetkemeyer’s comments make him one of the first Republicans to take a similar stance as President Joe Biden, who has called for a broad deposit guarantee to mitigate fallout from the banking crisis. Meanwhile, several Republicans have criticized those proposals, calling it a bailout for big banks.
However, Luetkemeyer is bucking that GOP line, comparing the incident to a “Chicken Little situation.”
“You know, the sky is falling. Everybody runs around like that, the whole thing’s going to implode,” he said.
Instead, lawmakers should treat the bank collapse as a possible “contagion” that could spread across the country if it’s not contained and customers are not reassured of the system’s stability, he said.
Luetkemeyer pointed to a similar temporary policy that was implemented after the 2008 financial crisis that established an unlimited deposit insurance program for any bank above the $250,000 limit.
“So, what you could do right now is that very same thing and say, ‘Hey, look, for another 12 months here or six months, we’re going to guarantee you every single deposit in this country and every bank until we get this interest rate situation resolved and these banks get back on solid footing,’” he said.
Both SVB and Signature Bank collapsed late last week, prompting major federal intervention to backstop uninsured deposits in a bid to halt panic.
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SVB announced on Wednesday it had sold $21 billion in bonds, cementing $1.8 billion in previously unrealized losses. That announcement sparked a frenzy among venture capital firms, which reportedly began advising clients to pull their money from Silicon Valley Bank — causing its stock to be thrust into a free fall.
Regional bank stocks began reporting some recovery early Tuesday morning, including First Republic, KeyCorp, and Fifth Third Bancorp, which all saw increases despite recording their worst drops in more than three years on Monday. First Republic was up 20% as of Tuesday morning, while KeyCorp reported a 12% increase.
