As the current banking crisis worsens, US officials are reportedly exploring ways to expand the scope of deposit insurance to guarantee all bank deposits. Currently, the Federal Deposit Insurance Corporation's insurance cap stands at $250,000, but following the collapse of several banks in March, there have been calls to increase that amount.
Organizations such as the Mid-Size Bank Coalition of America have called for the cap to be lifted for the next two years, citing a need to protect depositors and prevent capital from being pulled from smaller banks for supposedly safer-looking heavyweights.
According to Bloomberg, the Treasury Department is discussing the possibility of the FDIC being able to expand the current deposit insurance beyond the maximum cap to cover all deposits. As of December 31, domestic US bank deposits totaled $17.7 trillion.
However, the move would depend on the level of emergency authority federal regulators have and if the insurance cap can be increased without formal consent from Congress. Bloomberg's sources suggest that US authorities don't deem such a drastic move necessary at the moment, as recent steps taken by financial regulators are likely to be sufficient. As such, a potential strategy is being developed in case the current situation worsens.
In response to recent bank collapses, the Federal Reserve rolled out the $25 billion Bank Term Funding Program (BTFP) on March 13 to stem any further contagion. The White House Press Secretary Karine Jean-Pierre was asked if the federal government supports the push from small- and mid-size banks to expand FDIC insurance beyond $250,000.
However, Jean-Pierrre was tight-lipped on the Biden Administration's view, stating that their goal is to ensure the financial system is stable, and creating a fair playing field was the focus of the Treasury and the bank regulators.
Problems? Just print more money
As we discussed in a previous article, the Federal Reserve printed $300 billion to help the banking system, but now there is insufficient liquidity. The Fed is meeting with other central banks to enhance liquidity provision through standing US dollar liquidity swap line arrangements. The central banks have agreed to daily operations until the end of April to relieve tensions in global funding markets.
As a result of concerns about inflation and currency devaluation, some investors have turned to Bitcoin, which is not subject to government or central entity control and has a limited supply.
With everything that is going on, which do you trust more, DeFi or traditional finance?
