FDIC wants to strengthen account coverage

The precarious and nervous state of some regional banks prompted the Federal Deposit Insurance Corporation to come up with a plan to calm the waters down a bit.

The FDIC, of ​​course, is the government agency whose name is hung on the doors of many banks because it insures bank deposits; up to $250,000 per depositor per bank.

He released a report on Monday with suggestions on how to improve federal deposit safety nets that could help bank customers breathe easier instead of withdrawing their money in a panic.

The report offers three options. First: increase the deposit insurance limit from its current level of $250,000. Number 2: fully insure all deposits. Number 3: Insure business accounts used for payroll and other expenses.

“To the extent that it restores confidence, it could provide stability to the financial system,” said Edward Mills, an analyst at Raymond James, who is a Marketplace underwriter. Mills particularly likes the idea of ​​insuring these payroll accounts.

“If you don’t have to worry about insuring those deposits, you’re more likely to keep those deposits in a bank,” he explained, instead of panicking and joining in a bank run. .

William Isaac also likes the idea of ​​insuring payroll accounts. He ran the FDIC in the 1980s. And he said that option would improve the stability of banks and their communities.

“And the people that … the grocery stores and the gas stations that serve those employees … need in order for those employees to get paid,” he said.

But the FDIC cannot act alone. It needs congressional approval, and lawmakers are a bit preoccupied right now with fighting the debt limit. Henrietta Treyz, director of economic policy at Veda Partners, thinks the chances of Congress getting through on these deposit insurance reforms are pretty slim.

“I would say the odds [are] at 10%, at this point,” she said.

But she said those odds would increase if more banks failed in more congressional districts — especially in the Midwest where they would affect “agricultural sectors, the auto industry … then you start to see significant changes and a feeling emergency grow,” Treyz said.

The FDIC would welcome some urgency. His report says uninsured depositors triggered the failures of Silicon Valley Bank and Signature Bank.

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