A top House Republican called for the federal government to temporarily insure all bank deposits at all banks around the country.
Congressman Blaine Luetkemeyer (R-MO) said Tuesday that the government should back up all deposits in banks for the time being in order to shore up confidence in the financial system and avoid bank runs. His comments come amidst controversy over the government’s decision to fully insure the deposits of Silicon Valley Bank after it collapsed last week.
“If you don’t do this, there’s going to be a run on your smaller banks,” Luetkemeyer told POLITICO. “Everyone’s going to take their money out and run to the JPMorgan’s and these too-big-to-fail banks, and they’re going to get bigger and everybody else is going to get smaller and weaker, and it’s going really be bad for our system.”
Luetkemeyer, a former banker and a member of the House Financial Services Committee, is one of a few House Republicans taking the Biden administration’s line on insuring deposits at SVB. Other Republicans in Congress, including Reps. Matt Gaetz (R-FL) and Lance Gooden (R-TX), and Senators Josh Hawley (R-MO), J.D. Vance (R-OH), Tom Cotton (R-AR), and Roger Marshall (R-KS), among others, have blasted the Biden administration’s policy, calling it a bailout for large banks.
Luetkemeyer seemed to disagree. “The thought process here is that this is a contagion that could be spread across the entire banking system if it’s not contained and if people don’t stop and be calm about their assessment of the situation,” he said. “This is a Chicken Little situation. You know, the sky is falling. Everybody runs around like that, the whole thing’s going to implode.”
“So what you could do right now is that very same thing and say, hey, look, for another 12 months here or six months, we’re going to guarantee you every single deposit in this country and every bank until we get this interest rate situation resolved and these banks get back on solid footing,” he said. He noted that after the financial crisis in 2008, a temporary policy was established by the FDIC that increased deposit insurance above the $250,000 limit.
The Republican later backed down somewhat, saying in a statement that the policy should only last between 30 to 60 days.
The FDIC announced Monday that it would insure all depositors at Silicon Valley Bank after it collapsed late last week. “Depositors will have full access to their money beginning this morning, when Silicon Valley Bridge Bank, N.A., the bridge bank, opens and resumes normal banking hours and activities, including online banking,” the FDIC said in a statement. “Depositors and borrowers will automatically become customers of Silicon Valley Bridge Bank, N.A. and will have customer service and access to their funds by ATM, debit cards, and writing checks in the same manner as before. Silicon Valley Bank’s official checks will continue to clear. Loan customers should continue making loan payments as usual.”
“The transfer of all the deposits was completed under the systemic risk exception approved [Sunday],” the FDIC added. “All depositors of the institution will be made whole. No losses associated with the resolution of Silicon Valley Bank will be borne by taxpayers. Shareholders and certain unsecured debt holders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”