By David Lawder
WASHINGTON, March 15 (Reuters) - The Federal Deposit
Insurance Corp may need to seek temporary guarantees for all
uninsured U.S. bank deposits to stem a drain of funds from small
and regional U.S. lenders following deposit bailouts for failed
banks SVB Financial and Signature Bank, former FDIC chair Sheila
Bair said on Wednesday.
Bair, who oversaw hundreds of bank closures at the FDIC
during the 2008-2009 financial crisis, told Reuters in an
interview that the "one-off" deposit guarantees for Silicon
Valley Bank and Signature have left depositors
elsewhere fearing for safety and fleeing to larger institutions.
"My biggest fear now is that that lack of trust in the
banking system takes hold and uninsured deposits start fleeing
banks of all sizes to the biggest banks, just making them bigger
again," Bair said. "And that otherwise healthy banks get into
trouble because their deposit base is unstable and running."
If that continues, the FDIC and the U.S. Treasury should
seek "streamlined" authority from Congress to guarantee all
uninsured deposits and transaction accounts, which handle client
company payroll and operations, she said.
Under the 2010 financial reform law known as Dodd-Frank, the
FDIC was given the authority to lift its deposit cap for all
accounts, in conjunction with the Federal Reserve and the
Treasury Department, if a "liquidity event" exists that could
harm the financial system.
Under that provision, the FDIC could lift the cap after
Congress voted on the request on an expedited schedule. Such a
move would be complicated by a divided Congress.
The FDIC took a similar action during the financial crisis,
before the Dodd-Frank law was enacted.
Some regional banks came under renewed stock market pressure
on Wednesday as a steep fall in Credit Suisse shares
fanned contagion fears, and as S&P Global Ratings and Fitch
Ratings downgraded First Republic Bank's credit rating
over concerns about deposit losses. Fitch also put PacWest Bank on watch for possible downgrade.
A Reuters review of company filings and FDIC data showed
that San Francisco-based First Republic had uninsured deposits
of $119.5 billion, or 68% of its total.
Bair said she did not view Silicon Valley Bank or Signature
Bank as systemically important institutions, adding that they
could have been resolved through FDIC's normal takeover process,
with a "haircut" for uninsured deposits.
But a "supermajority" of the Federal Reserve and FDIC boards
plus Treasury Secretary Janet Yellen and President Joe Biden
made the determination that the two banks qualified for
systemic risk exceptions, qualifying them for the backstops.
Bair said it wasn't "realistic" for similar one-off
determinations to be made for other banks, particularly those
that fall below the revised "systemically important
institutions" threshold of $250 billion in assets.
Bair also said she believed that the Federal Reserve should
"hit pause" on interest rate hikes to better assess impacts on
the financial system as well as the broader economy."
(Reporting by David Lawder; Editing by Leslie Adler)
david.lawder.thomsonreuters.com@reuters.net))
