Biden administration officials have put themselves in an awkward position after the Silicon Valley Bank fiasco by vowing to bail out its wealthy clients — without offering any similar assurances to depositors in the rest of the banking industry.
Treasury Secretary Janet Yellen attempted to straddle that line on Thursday when she said other regional banks should not necessarily expect to have the Federal Deposit Insurance Corporation cover losses for all accounts in the event of a collapse.Her comments came as some lawmakers on Capitol Hill weigh the prospect of insuring all deposits — not just the first $250,000 of an eligible deposit, as FDIC rules currently require.
Now, the Biden administration is arguing SVB was, in fact, too big to fail without risking a broader financial meltdown. The Biden administration has offered few explanations about why it believed SVB and a New York City-based institution, Signature Bank, which also collapsed last week, could have brought down broader swaths of the economy.
Congress voted in 2018 to remove the most burdensome requirements for banks of roughly SVB’s size and smaller because lawmakers decided those banks did not pose systemic risks. Universal deposit insurance, its proponents say, could guard against future bank runs by eliminating the sense of panic that preceded the collapse of both banks this month.
Yellen’s testimony on Thursday that in the future, smaller banks should not expect the FDIC to cover uninsured deposits is likely to make that situation worse.
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