U.S. banking authorities should go to Congress and ask for a “blanket backstop” against uninsured deposits if they see systemic risk, a former top regulator said Friday as she criticized the “one-off” bailouts of two banks last weekend.
Speaking on CNBC, Sheila Bair, who ran the Federal Deposit Insurance Corp. from 2006 to 2011, said she would not have declared Silicon Valley Bank
SIVB,
or New York’s Signature Bank
SBNY,
-22.87%
systemic had she been in her former role as head of the FDIC. She cited the two banks’ relatively small sizes.
Now see: Biden calls for tougher penalties for executives at failed banks
But Bair said that if regulators were seeing a “truly systemic problem” with uninsured deposit withdrawals, they should go to Congress and get approval to backstop uninsured depositors at all banks.
“If you do these one-offs,” she said, bailing out some banks but not others, “it creates uncertainty, and the ones that do not get the bailout are under more pressure.”
Regulators including the FDIC on Sunday said Silicon Valley Bank customers would have access to all their money, as would depositors at New York’s Signature Bank, after the two institutions failed.
That meant going above the limit for FDIC coverage, which is $250,000 per depositor per bank.
The question of who is protected and who is not when banks are in trouble was brought up at a congressional hearing this week, as lawmakers questioned Treasury Secretary Janet Yellen. Testifying before the Senate Finance Committee, Yellen was asked if regional bank
KRE,
-6.24%
depositors should expect the federal government to bail them out if their bank should fail.
Yellen responded that uninsured deposits will only be guaranteed if a bank’s failure poses a “systemic risk” to the U.S. economy.
Some lawmakers are warming to the idea of enacting universal deposit insurance. But a major concern for lawmakers, as MarketWatch reports, is how to pay for such a system.
Read: Unlimited deposit insurance: A radical idea that’s gaining steam in Congress
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