Mid-sized banks seek unlimited FDIC backstop as banking fears rise

A coalition of medium-sized US banks is asking the government to insure all deposits for the next two years, in the wake of Silicon Valley Bank’s bailout that insured all firm deposits regardless of size.

Driving the news: The Mid-Size Bank Coalition of America sent a letter to regulators arguing that a temporary suspension of the FDIC’s deposit insurance limit is necessary to ensure smaller banks can navigate the current banking crisis, Bloomberg reported.

• “Doing so would immediately stop the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce the chances of more bank failures,” the letter says, according to Bloomberg.
• Tesla CEO Elon Musk also supported the idea in a Twitter posts early Saturday, saying the move was necessary to “stop bank runs.”

Why it’s important: After the sudden collapse of Silicon Valley Bank and New York’s Signature Bank, the spotlight is on banks that may also be vulnerable to a sudden outflow of deposits.

• The FDIC currently insures deposits up to $250,000, although the agency’s decision to protect SVP and Signature depositors suggests a broader willingness to support customer funds.
• Separately, Bloomberg also reported that billionaire investor Warren Buffett was in contact with the White House, fueling speculation that he could provide financial support to regional banks.

The recipients: MBCA sent its letter to Treasury Secretary Janet Yellen, the FDIC, the Comptroller of the Currency and the Fed, according to Bloomberg.

What we watch: Whether Washington responds to the growing call to expand FDIC deposit protection. California Democratic Rep. Ro Khanna is preparing to introduce legislation that would remove the agency’s coverage cap, Dealbook reported Saturday.