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Senator Warren Calls for Deposit Insurance Limit to be Lifted, Fed Explodes


Sen. Elizabeth Warren (D-Mass.) on Sunday called on Congress to lift federal insurance levels for bank deposits over $250,000, a week after the Biden administration announced it would protect all depositors at Silicon Valley Bank, no matter how much money she had in the failing institution.

Currently, the Federal Deposit Insurance Corporation, or FDIC, only insures up to $250,000 in bank deposits. On CBS’s “Face the Nation,” Warren, a member of the Senate Banking Committee and an expert on commercial and bankruptcy law, suggested raising that figure from $2 million to $10 million.

“Small businesses need to be able to count on getting their money to pay the payroll, to pay the utility bills,” she said. “Non-profit organizations should be able to do that. These are not people who can examine the safety and soundness of their individual banks. That is the job that the regulators have to do.”

Warren, who was part of a faction of Democrats that vocally opposed a 2018 law that reversed key provisions of the 2010 Dodd-Frank Act and weakened banking regulations, said lifting the FDIC insurance limit was “a good move would be if this were done in conjunction. with stricter rules for banks.

Big banks may get bigger as the ‘too big to fail’ crisis raises concerns

In another appearance, on ABC’s “This Week,” Warren got more specific, saying she wants Congress to repeal a provision of the 2018 bill that had eased restrictions on banks with $50 billion or more in assets.

“Those are the banks for whom the Federal Reserve Bank is the most important regulator. And those are the banks that took on these risky practices that ended up … blowing up at least three banks,” said Warren. “We need strict regulation. If you have more than $50 billion…you should be subject to stress testing and proper capital requirements and so forth.

Warren, a longtime critic of Federal Reserve Chairman Jerome H. Powell, also said he needs to make sure the Fed pauses its campaign to raise interest rates, citing factors such as the war in Ukraine and price inflation. The Fed’s next policy meeting is next Tuesday and Wednesday, with interest rate announcements on Wednesday afternoon.

“Raising interest rates will not solve those problems. All it does… is put millions of people out of work,” said Warren.

She stopped short of explicitly saying she advised President Biden to fire Powell as Fed chairman, but said he should no longer be in that position.

“Look, my opinion of Jay Powell is public knowledge at this point,” she added. “He’s had two jobs. One is dealing with monetary policy. One is dealing with regulation. He’s failed at both.”

Other legislators are also weighing in. On “Face the Nation,” Rep. Patrick T. McHenry (RN.C.), chairman of the House Financial Services Committee, said that while Warren’s interview was the first time he’d heard of a proposal to lift the deposit guarantee ceiling, he didn’t rule out the possibility. McHenry noted that in 2010, after the last financial crisis, the FDIC raised its deposit insurance cap from $100,000 to $250,000.

“I have not had a single conversation with the White House or the administration about it [changing the level on] deposit insurance,” McHenry said. “However, what I will do … is determine whether or not we should address the FDIC deposit level.”

On NBC’s “Meet the Press,” Sen. Mike Rounds (RS.D.), a member of the Senate Banking Committee, suggested that the $250,000 deposit limit wasn’t high enough, citing inflation.

“When we talk about allowing a bank to fail, it is one thing to say that it is okay to allow a bank’s owners to lose their funds. It’s another thing to say that the depositors must necessarily be allowed to lose their deposits,” Rounds said. “That’s why we’re starting with a quarter of a million dollars in protection. Maybe that’s not enough.”

Warren’s proposal comes a week after federal authorities announced they would protect all deposits at two failing banks – Silicon Valley Bank and Signature Bank of New York – in order to stabilize and strengthen public confidence in the US banking system. But the collapse of the banks has also sparked new battles over federal banking regulation.

On Friday, Biden called on Congress to impose tougher sentences on senior bank executives whose mismanagement contributes to the failure of their institutions. as Silicon Valley Bank did about a week ago.

Biden asked Congress to expand the FDIC’s authority to impose higher penalties on executives at such banks, including banning other jobs in the banking industry, imposing fines and recovering their compensation.

That compensation should include gains from stock sales, the White House specified later Friday, noting that Silicon Valley Bank CEO Greg Becker sold $3.6 million worth of company stock days before the bank’s collapse. .

Under existing law, the FDIC can only fine bank executives who “recklessly” engage in a pattern of “unsafe or unsound” practices. The federal agency can also only prevent executives from holding jobs at other banks if they demonstrate “deliberate or persistent disregard for the safety and soundness” of their bank.

“Congress should strengthen this tool by lowering the legal standard for imposing this prohibition when a bank is placed in FDIC receivership,” the White House said Friday. “The president believes that if you’re responsible for the failure of one bank, you shouldn’t just turn around and run another.”

Azi Paybarah contributed to this report.

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