Bloomberg News reports that studies are underway by US Treasury Department officials to guarantee deposits in the event of a crisis. The Federal Deposit Insurance Corp. Banks is ascertaining ways of expanding the coverage for all deposits. They argue that there is a need to work in coalition to ward off a financial crunch.
Role of Treasury Department
Staff belonging to the Treasury Department are reviewing if the federal regulators possess enough emergency authority for insuring those deposits. The amount of which exceeds the present $250,000 cap. This is to assess whether federal regulators can give formal consent from Congress, which is greatly divided on the issue. The same was revealed by individuals that are aware of the matter.
Is Such a Move by the Treasury Department Necessary?
According to the Treasury Department authorities, it can be safely said that perhaps a move of this kind is still not required. This is true following the regulators taking steps this month to help banks. It is for keeping up with any withdrawals, as stated by the people. These people requested anonymity, citing the confidentiality of the matter. Yet, the authorities are building a strategy out of due diligence to combat it in case the situation worsens.
Treasury Department – The Main Agenda
Bloomberg News reports that one of the main aspects that would be taken up is the legal framework for the expansion of FDIC insurance which would be using the authority of the Treasury Department to take emergency action. The discussion would also be to bank on Exchange Stabilization Fund.
“Dangerous Precedent”
A letter written on March 17th and seen by Bloomberg News cited an instance wherein the Mid-Size Bank Coalition of America urged regulators to remove the cap on the insured deposits. The Mid-Size Coalition of America comprises banks with assets beyond $100 billion.
It was found that there is an increased concern related to a scenario that can affect the smaller competitors. The organization said in case another regional lender fumbled or failed, a situation would arise where more and more depositors would shift their money to the nation’s biggest bank, irrespective of the existing health of the smaller competitors.
On the one hand, a few lawmakers who also include the Republicans reveal that they are ascertaining changes to the FDIC insurance cap of $250,000; a few House conservatives do not vouch for a 100% guarantee.
First Crisis since the Dodd-Frank Act of 2010
Spokespeople of the Fed and FDIC refused to comment. The individual regulators and the administration are trying to dodge and negotiate the first banking crunch since the 2010’s Doff-Frank Act. It was a reorganization of the regulatory system in the financial markets.
