Administration officials are studying ways to expand the Federal Deposit Insurance Corporation coverage to all deposits regardless of size as smaller regional banks are asking the Treasury Department for assistance.

Each depositor is guaranteed deposits up to $250,000. But the recent failures of Silicon Valley and Signature Banks and the bailout of depositors — even those with deposits over $250,000 — have shaken the foundations of small and mid-sized banks. A coalition of mid-sized banks has asked federal regulators to guarantee all deposits for the next two years.

But the administration and the FDIC are unsure whether the White House has the authority to expand FDIC insurance coverage without Congressional authorization.


One legal framework under discussion for expanding FDIC insurance would use the Treasury Department’s authority to take emergency action and lean on the Exchange Stabilization Fund, the people said.

That pot of money typically is used to buy or sell currencies and to provide financing to foreign governments. But the fund, created in the 1930s, has been used as a backstop for emergency lending facilities by the Fed in recent years. It’s the only pot of money under the full authority of the Treasury secretary, with other spending and financing under the jurisdiction of Congress.

“Due to decisive recent actions, the situation has stabilized, deposit flows are improving and Americans can have confidence in the safety of their deposits,” a Treasury spokeswoman said in a statement.

That’s not an entirely accurate statement. The request from mid-size banks to guarantee all depositors is the result of massive outflows of cash from wealthy depositors into larger banks, presumed to be safer. An important mid-sized bank, First Republic, lost 47% of its value until Treasury Secretary Janet Yellen’s speech to the American Bankers Association on Monday morning indicated that the FDIC would backstop all deposits.

“The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system,” Yellen said. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”

It’s not clear at all that Yellen or anyone else in the executive branch has that kind of authority. And the House Freedom Caucus has indicated they will challenge any such effort to insure depositors over the $250,000 statutory limit.

“Any universal guarantee on all bank deposits, whether implicit or explicit, enshrines a dangerous precedent that simply encourages future irresponsible behavior to be paid for by those not involved who followed the rules,” the Freedom Caucus said in a statement.

Yes, but it’s good politics. And Yellen’s statements show that we’re not out of the woods in this banking crisis — not by a long shot. The mid-sized banks are getting very nervous, and if one or two of those banks go under, the president will have a full-scale banking crisis on his hands.

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