: Banking sector’s growing political might could blunt reform in wake of SVB failure, experts warn

by | Apr 5, 2023 | Stock Market

Lawmakers and regulators in Washington are hard at work devising strategies to prevent another bank bailout following the failures last month of Silicon Valley Bank and Signature Bank of New York. Congress is debating several ideas, including lifting or eliminating the $250,000 cap on federal deposit insurance, coupled with higher deposit-insurance fees and stricter rules around how banks fund themselves.

A panel of experts and former regulators organized by the Brookings Institution Wednesday mostly took a dim view of eliminating deposit-insurance caps, however, given the banking industry’s history of convincing government watchdogs to ease regulations while maintaining public subsidies that enrich bank shareholders and executives. “Unlimited deposit insurance would require even stricter and fully consistent financial regulation. We have a real history that our political system is incapabable of that,” Patricia McCoy, a former Obama Treasury official, said at the Brookings event. “The lack of political will has grown worse with the growing political might of banks, and banks are already pushing back against tighter regulation.” Calls to lift or eliminate the Federal Deposit Insurance Corp.’s $250,000 cap grew in the days following Silicon Valley Bank’s collapse, after federal regulators used a systemic-risk exception in the law to backstop even uninsured deposits at the bank. Read more: Unlimited deposit insurance: A radical idea that’s gaining steam in Congress The move underscored complaints that the U.S. already has a sys …

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