Yellen: Feds willing to protect uninsured small bank depositors

Treasury Secretary Janet Yellen said the government is willing to expand FDIC insurance to regional and community banks in distress. Her comments came March 21 during the American Bankers Association’s Washington Summit, according to the ABA Banking Journal.

The banking industry has been in a state of flux following the failures of California-based Silicon Valley Bank and New York-based Signature Bank. The New York Department of Financial Institutions closed the $110 billion Signature on March 12. The bank had faced a crisis in confidence after California-based SVB failed March 10 following an unsuccessful capital raise. 

The $210 billion, Santa Clara-based bank was the largest to fail since $307 billion Washington Mutual Bank went belly-up in 2008. Following the crashes, federal regulators guaranteed that all depositors — even uninsured depositors above the FDIC’s $250,000 limit — would be reimbursed following the collapse of the two banks.

“Our intervention was necessary to protect the broader U.S. banking system,” Yellen said during the ABA conference. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion. I believe that our actions reduced the risk of further bank failures that would have imposed losses on the Deposit Insurance Fund.”


Yellen’s comments came four days after she indicated in testimony before the Senate Banking Committee that the deposit cap would only be lifted at banks large enough to pose a systemic risk if they failed, a designation that likely excluded midsize and community banks. 

On March 20, a group of midsize U.S. banks asked regulators to expand FDIC insurance to all deposits for the next two years to prevent a wider run on banks following the collapses.  The letter was addressed to Yellen; the FDIC; Office of the Comptroller of the Currency; and the Federal Reserve. “Doing so will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce the chances of more bank failures,” the Mid-Size Bank Coalition of America wrote in the letter seen by Bloomberg News

The letter cited the influx of deposits the largest banks have received following the failures.  “Notwithstanding the overall health and safety of the banking industry, confidence has been eroded in all but the largest banks,” the Mid-Size Bank Coalition of America wrote. “Confidence in our banking system as a whole must be immediately restored.”

The Regional Mid-Size Bank Coalition includes dozens of banks with assets of between $10 billion and $100 billion. Regional members include Bremer Bank, St. Paul; Nicolet Bank and Associated Bank, both of Green Bay, Wis.; First Merchants Bank, Muncie, Ind; Old National Bank, Evansville, Ind.; Heartland Financial, Dubuque, Iowa; Bell Bank, Fargo, N.D.; First National Bank, Omaha, Neb.; Pinnacle Bank, Elkhorn, Neb.; QCR Holdings, Moline, Ill.; Byline Bank, Chicago; Wintrust Financial, Rosemont, Ill.; Busey Bank, Champaign, Ill.; Glacier Bank, Kalispell, Mont.; and First Interstate Bank, Billings, Mont.; and Flagstar Bank, Troy, Mich.