Lawmakers consider raising FDIC deposit insurance cap after SVB collapse

Deposit insurance - Money - Law

The Silicon Valley Bank collapse has some believing that $250,000 is not enough protection.

Some lawmakers in the United States consider the Silicon Valley Bank collapse to be an eye-opening experience and are now tinkering with the idea of raising the Federal Deposit Insurance Corporation’s coverage cap of $250,000 in case of another catastrophic bank failure in the future.

Raising the FDIC cap would provide greater protection to the customers of a failed bank.

“I think that lifting the FDIC insurance cap is a good move,” said Senator Elizabeth Warren (D-Massachusetts in a recent CBS interview. She went on to say that the true question in her mind is: “Where’s the right number on lifting it?”

Deposit insurance - money - question

That said, it appears that many lawmakers agree with the senator and that it could become a bipartisan effort. For instance, in a recent NBC report, Senator Mike Rounds (R-South Dakota) said that the current cap of $250,000 might “not be enough.”

Following the bank’s recent failure, FDIC took over to protect its customers with deposit insurance.

When the bank failed earlier this month, the FDIC took it over in order to protect the depositors. That said, concerns rapidly grew among those depositors as most of the FDIC’s deposits were higher than $250,000 and were therefore uninsured because the additional amount was above the cap. The bank regularly received large deposits due to its close link with venture capital and well-backed tech startups.

The Federal Reserve, the Treasury Department and the FDIC have all since announced that in SVB’s case, all depositors will be given access to their deposits, no matter how high they were, regardless of the $250,000 coverage cap.

Some critics of the move, such as Senator Josh Hawley (R-Missouri) have been outspoken against this strategy, referring to it as a “bailout.”

However, the White House has stated that the US government’s strategy is to assist depositors and not the investors or management of the bank itself. Karine Jean-Pierre, White House press secretary, specifically stated that this rescue strategy “is not a bailout.” Lawmakers involved in the decision have underscored that the move is specific to assisting the depositors and not the bank’s owners.

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