Fresh bank regulations might be a nonstarter for now. But an overhaul of federal deposit insurance is getting bipartisan backing, including from members sitting on the powerful Senate Banking panel.
The new willingness to revisit federal deposit insurance comes in the wake of the US stepping in to shield all deposits at Silicon Valley Bank and Signature Bank after their weekend implosions. Lawmakers now seem willing to revisit the existing $250,000 federal insurance limit on checking and savings accounts, last raised in 2008.
Sen. Elizabeth Warren, D-Mass., told Semafor she believes it should be lifted once again with Wall Street bearing the full cost.
“The right answer is clearly to get that number up higher and to have the banks pay for that increased protection rather than the federal government coming in, after the fact in the middle of a crisis, and providing the help to stop a nationwide run on banks,” Warren, who sits on Senate Banking, said.
“I’m certainly open to it. I think that you have to do it proactively instead of retroactively,” Sen. J.D. Vance, R-Ohio, told Semafor. He argued that right now the U.S. has a de facto “two-tier” banking system.
“Everybody understands implicitly that if [JP Morgan] fails tomorrow, its depositors are gonna get a bailout from the federal government,” Vance, another Senate Banking member, said. “Clearly, a $300 million bank in southern Ohio is not going to get a bailout from the federal government.”
Both Vance and Sen. Thom Tillis, R-N.C., suggested pegging the current insurance deposit limit to inflation. Sen. Mike Rounds, R-S.D., also told Semafor that the current level is “way too low, and I’ve always felt that way.”
Lindsay Owens, a progressive economist and executive director of the Groundwork Collaborative, said there’s a “reckoning” underway on deposit insurance.
“I don’t think there’s any putting the toothpaste back in the tube here once you start insuring 100% of deposits,” she told Semafor. “You probably need new premium structures and new laws in place.”
At least one prominent Republican wants to do exactly that. Sen. Mitt Romney, R-Utah, is pushing for universal deposit insurance. While he doesn’t sit on the Senate Banking panel, Romney is making the case to other Republicans — including Vance — that charging large depositors an insurance premium that differentiates between the size and riskiness of the bank would be effective at preventing the next bank run.
“I just believe that you can’t have depositors worrying about getting their money back,” Romney told Semafor. “Anytime that’s going to be the case, you’re going to present some risks to the sector.”