The collapse of two regional banks is anticipated to price the federal government’s deposit insurance coverage fund greater than $22 billion. The Biden administration says smaller banks should not have to select up the tab.
SACHA PFEIFFER, HOST:
The worth tag for 2 huge financial institution failures this month is anticipated to prime $22 billion. The Biden administration says small group banks shouldn’t be caught with that invoice. That is one in every of a number of suggestions the White Home is making to financial institution regulators. And it comes after two days of congressional hearings with a lot of finger-pointing about who’s responsible for the collapse of the banks and easy methods to forestall related meltdowns. NPR’s Scott Horsley joins us now. Hello, Scott.
SCOTT HORSLEY, BYLINE: Good morning, Sacha.
PFEIFFER: Scott, the White Home has been adamant that taxpayers won’t be on the hook for this bailout. So the place is the cash going to return from?
HORSLEY: It is going to come from different banks. And as you say, it is some huge cash. Keep in mind, the federal government determined to backstop all the shoppers at Silicon Valley Financial institution, and the overwhelming majority of these deposits had been over the $250,000 restrict that is sometimes coated by deposit insurance coverage. By regulation, the FDIC has to get well any shortfall in its insurance coverage fund by imposing a particular evaluation. That is a form of one-time tax on different banks across the nation. And that introduced howls of protest this week from lawmakers like Andy Barr of Kentucky.
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ANDY BARR: The overwhelming majority of group banks in my district are properly managed, and people Kentucky banks and their prospects have been asking me why they need to need to pay an evaluation in your rescue of Silicon Valley Financial institution with a 100% assure of deposits of largely rich, refined depositors. I believe it is a authentic query.
HORSLEY: The truth is, it is a query we heard again and again this week from members of Congress. Now, the FDIC does have some latitude to determine how the invoice is divvied up amongst completely different classes of banks. And the FDIC is anticipated to spell out its restoration components in nearly a month.
PFEIFFER: Scott, this legislator simply addressed this query partly, however why is the White Home making an attempt to guard group banks from being saddled with this price?
HORSLEY: The administration’s argument’s twofold. First, it says group banks had been to not blame for the issues at Silicon Valley. And second, they are saying they need to preserve a wholesome mixture of banks of all completely different sizes. , traditionally, the U.S. has tended to have much more small banks than many different nations. And Treasury Secretary Janet Yellen mentioned final week that whereas huge banks are definitely vital for the economic system, small banks present companies in a approach that a whole lot of these huge banks cannot match.
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JANET YELLEN: These banks present important credit score and monetary assist to households and small companies and infrequently have specialised information and experience within the communities they put money into.
HORSLEY: Now, this episode has additionally prompted a contemporary have a look at deposit insurance coverage total, whether or not that $250,000 restrict is simply too low, particularly for companies and must be raised. Whether it is, how would that price be shared amongst completely different banks? Not like the particular evaluation, that is one thing that is going to take an act of Congress.
PFEIFFER: Scott, the White Home can be recommending some beefed-up oversight of mid-sized banks. What are you able to inform us about that?
HORSLEY: Yeah, the collapse of Silicon Valley Financial institution has proven that even a mid-sized financial institution failure can do a whole lot of harm, particularly if depositors at different banks get spooked and begin to pull their cash out. So the administration is urging regulators to impose stricter guidelines on banks which can be the scale that Silicon Valley was. Guidelines like that had been put in place after the monetary disaster underneath the Dodd-Frank regulation. However these guidelines had been watered down in recent times, beginning in the course of the Trump administration. The Biden administration has put in a brand new crop of regulators, and so they’re more likely to pursue a more durable strategy. Now, all of that is only a suggestion from the administration. These are impartial regulatory businesses. However since Biden did appoint a whole lot of the regulators, the suggestion is more likely to be taken significantly.
PFEIFFER: NPR’s Scott Horsley, thanks.
HORSLEY: You are welcome.
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