The government should temporarily insure every bank deposit in the country to shore up confidence in the U.S. financial system, a senior GOP lawmaker said Tuesday.
Rep. Blaine Luetkemeyer of Missouri — a top member of the House Financial Services Committee and a former banker — said in an interview that such a move would help the smallest banks as they deal with the fallout of the collapse of regional lenders Silicon Valley Bank and Signature Bank. The Biden administration and regulators have already guaranteed all the deposits at the two banks — above the deposit insurance limit of $250,000 — to mitigate economic damage.
Luetkemeyer said expanding the safety net would “give the system confidence.”
“If you don’t do this, there’s going to be a run on your smaller banks,” he said. “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 is one of the first Republican lawmakers to call for a broad-based deposit guarantee as a remedy for the banking crisis, leaning into a Biden administration response that other GOP politicians have blasted as a bailout. Luetkemeyer is among the House Republicans supporting regulators’ recent actions to contain the banking meltdown, in line with House Financial Services Chair Patrick McHenry (R-N.C.).
“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 and be calm about their assessment of the situation,” Luetkemeyer 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.”
Luetkemeyer’s concerns come as the smallest, “community” banks try to make the case that they’re not engaged in the kind of risk-taking that that brought down their larger, regional competitors.
The Independent Community Bankers of America, a trade association for the smallest lenders, is calling on policymakers to impose stricter oversight on the largest financial institutions and to spare community banks from having to pay for the deposit bailout of Silicon Valley Bank and Signature Bank. It’s also a competitive concern, as the biggest global banks appear to be attracting deposits from other banks.
Luetkemeyer pointed to a temporary policy established after the 2008 meltdown that established unlimited deposit insurance above the $250,000 limit.
“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 later changed his position on the potential duration, with a spokesperson saying the guarantee could be in place “perhaps 30 to 60 days.”
Still, Luetkemeyer said “the system is sound” and “in better shape than it’s been in probably 20 years.”
“But,” he said, “we do have a few problems in it that need to be worked out.”
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