Banking sector turmoil prompts mid-size banks to seek deposit insurance protection

Banking sector turmoil prompts mid-size banks to seek deposit insurance protection

The back-to-back collapses of the three biggest banks in the United States cautioned the Midsize banks of America. Amidst the banking sector turmoil, the Mid-Size Bank Bank Coalition of America (MBCA) asked the Federal Deposit Insurance Corporation (FDIC) to extend the insurance for up to two years. 

The crisis of the Silvergate bank, the Silicon Valley Bank, and the Signature bank alerted all the banks in the United States to review their existing frameworks. A two-year extension on insurance against deposits has been demanded by the MBCA in a letter to the FDIC. The collapse of three major banks left chaos and widespread outage in the banking sector of the United States and forced them to take defensive measures against any unforeseen potential crisis. 

A few days back, United States Treasury Secretary Janet Yellen said that government refunds of uninsured deposits will not be extended to every bank that collapses. Additionally, only those uninsured deposits will be covered which poses a systematic risk to the financial system. 

Around 110 banks come under the Mid-Size Bank Coalition of America (MBCA) and have assets of about $100 billion. The banks are concerned about their existence after the customers showed restraint to deposit any additional funds in the banks. Depositors looking towards banking sector giants like Bank of America for additional safety as these banks are considered safer than others. 

The reason for the demand for a two-year extension on uninsured deposits mentioned in the MBCA letter to the Federal Deposit Insurance Corporation is to ensure the confidence of customers. Senator and U.S Treasury Secretary Janet Yellen in his statement released on 17 March said that not all deposits will be covered under the insurance.

 However, member of the Housing Financial Committee Blaine Luetkemeyer asked the government to insure all deposits in the country to protect the customer’s interests. It will be interesting to witness the upcoming steps of the FDIC in days to come.

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