The FDIC bailed out millions in uninsured deposits at Silicon Valley Bank, but it won’t do the same for smaller banks, the treasury secretary said.
Treasury Secretary Janet Yellen said Thursday most Americans’ uninsured deposits would not be protected by the federal government, after the collapse of several midsize banks with high levels of uninsured cash over the past week sent the financial industry spiraling into a panic.
During a Senate Finance Committee hearing, Yellen was grilled by Oklahoma GOP Senator James Lankford over the Biden administration’s handling of the banking crisis, which saw the federal government offer a multibillion-dollar bailout to Silicon Valley Bank (SVB) after a bank run left it without enough cash to back up hundreds of millions of dollars of its clients’ deposits. Most of those deposits were not insured.
To address the crisis, U.S. bank regulators announced a plan last weekend to fully insure all deposits at SVB as well as the crypto-friendly Signature Bank. This would cover all deposits above the Federal Deposit Insurance Corp.’s insured limit of $250,000. Federal officials said the plan would be paid for by a special fee levied on all FDIC institutions.
While all banks would be required to pay for the plan, Yellen revealed under questioning Thursday that it would not apply to every bank. She said the federal government would extend the privilege only to troubled banks whose failure would have a profound impact on the U.S. financial system.
Uninsured deposits, Yellen said, would be covered only if a “failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences,” which would be decided by a majority of the FDIC’s board members.
Bank failures are a common occurrence in the United States.
