US banks request government action to protect against Silicon Valley bankruptcy infection
A consortium of mid-sized US banks has asked the Federal Banking Regulatory Commission to guarantee all its customers’ deposits for two years, even for amounts over the $250,000 limit, to avoid a contagious Silicon Valley bankruptcy.
The Mid-Sized Banks Coalition in America (MBCA) said in a letter to the authorities, according to a Bloomberg report on Saturday, that this measure would “immediately stop the flight of deposits from smaller banks, and lead to stability in the banking sector and significantly reduce The possibility of more bank failures.
The bankruptcy of Silicon Bank (SVB) and Signature Bank caused a crisis of confidence in this sector.
Many customers of similarly sized banks have withdrawn their money and deposited it into larger institutions such as JPMorgan or Bank of America, which are too big for the government to ignore bailing out in the event of a collapse.
This week, the market value of First Republic Bank, which mainly serves high-net-worth clients, plunged by 80%, amid fears of a contagion crash. The bank ranks 14th among the largest US banks in terms of assets.
Currently in the US, deposits are protected by the banking regulator, the Federal Deposit Insurance Corporation (FDIC), up to $250,000.
“Despite the health and safety of the banking sector in general, confidence in all but the largest banks has eroded,” Bloomberg quoted the coalition of banks.
In particular, the coalition called on the FDIC, the Federal Reserve (the central bank) and Treasury Secretary Janet Yellen to work to “immediately restore confidence.”
The group of banks proposes to finance this procedure itself by increasing the amount of contributions paid by banks to the FDIC.
On Thursday, 11 major US banks pledged to deposit a total of $30 billion in First Republic accounts.
Bank of America, Citigroup, JPMorgan Chase and eight other institutions hope to show their confidence in the country’s banking system, according to a joint statement.
(AFP)
