ABA: No simple responses for altering deposit insurance coverage

The discussion around deposit insurance coverage is a complicated one without any simple responses, and any modifications will have ramifications for the whole monetary system, American Bankers Association SVP Alison Touhey stated today. Touhey was among 4 panelists who took part in a roundtable conversation on deposit insurance coverage arranged by House Financial Services Committee Ranking Member Maxine Waters (D-Calif.). The roundtable came more than a month after the FDIC launched a report recommending that a “targeted” growth of deposit insurance coverage might be the very best approach for injecting more stability into the monetary system following the current bank failures. Touhey kept in mind that the failures happened because of situations particular to those banks.

“The failures of [Silicon Valley Bank], Signature and First Republic banks were largely idiosyncratic and the result of lapses in management that led to outsize and unreasonable concentrations in balance sheets that were significantly underprepared for rising interest rates,” Touhey stated. “However, these failures raise important questions about whether FDIC insurance coverage has kept pace with changes to the banking marketplace and allows banks to compete for customers on an equitable footing.”

ABA has actually formed a working group to check out deposit insurance coverage. Bankers have a large range of viewpoints on the problem, from the proper quantity of insurance coverage or whether extra protection is required, Touhey stated. What is clear is that the discussion around deposit insurance coverage will be a complex one without any quick or simple responses, she included.

“Moreover, deposit insurance is just one aspect of financial stability, which also includes transparent and predictable resolutions, among other things,” Touhey stated. “While the current framework is more than sufficient to handle systemic threats, it is becoming increasingly clear that every incident of stress is unique, and that the more flexibility the FDIC and other agencies have to make targeted decisions quickly, the better they can mitigate the impact of stress on the system.”

Waters acknowledged the intricacy of the problem in her closing remarks. “If there is one thing I heard today, it is: Don’t do anything irrational and give it a lot of thought before you jump into an option that you don’t know what the consequences may be,” she stated.


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