April 17, 2024

Mid-Size Bank Seeking FDIC Insurance Cover for All Deposit 

On March 18, a group of financial providers in the US Mid-size bank coalition in America (MBCA) issued a report requesting the Federal Reserves to insure all banking deposits for 2 years. The letter was penned by the members of the coalition of mid-sized banks urging the Federal Deposit Insurance Corporation (FDIC) to extend the insurance period and safeguard banks’ interest in a flooded market.

The MBCA called for the FDIC team to consider increasing the $250000 insurance limits to prevent the recurrence of the Silvergate scandal. Additionally, the MBCA argued that proposed insurance policies would boost the banking sector’s stability by minimizing the exodus of early stage startups.

The MBCA argued that the new proposal would enable small banks to thrive in a crowded market.

New Insurance Proposal

Based on the March 18 report, the quest to sustain operations in a vibrant financial industry has prompted banks at their expansion stage to develop strategies to finance their insurance programs.

The MBCA report stated that the uncertainty in the financial market had triggered banks to increase deposit-insurance programs for lenders.

Following the fallout of Silvergate, most investors in the financial sector have lost confidence in mid-sized startups leading to a massive withdrawal of assets. The devastated investors have opted to invest their assets in large firms such as JP Morgan Chase bank.

Surprisingly, investors believe the government has minimal impact on well-established financial providers in the US. Besides the Silvergate scandal, another bank in San Francisco, First Republic Bank (FRC), experienced an 80% dip in the stock market reading.

The decline in FRC shares has created worry among investors. Before this, the founder of the Deaton Law firm John Deaton had predicted the major fallout of more than 300 banks if the FDIC failed to address the banking insurance concern.

Deaton argued that FDIC should reconsider increasing the $250000 limit to safeguard bank deposits. Deaton’s address was supported by a US economist on March 13 who argued that the withdrawal of uninsured deposits subjects small banks to becoming the next domino to fall in the financial sector.

Mid-Size Bank Reveals Next Move

In addition, the MBCA team has urged the FDIC to collaborate with the Fed and US Treasury to develop strategies to improve the financial sector’s performance. The MBCA team has pledged to increase the FDIC depository measure to restore investors’ confidence.

Presently, more than 10 leading banks, including Bank of America and JPMorgan Chase, plan to support the banking system with $30 billion. In support of the MBCA move, the Fed has agreed to review the existing banking regulation associated with the collapse of Silicon Valley.

The Fed plans to issue an official announcement on May 1 concerning the adoption of new banking laws.

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