Waters: Expanded deposit insurance is ‘on the table’

WASHINGTON — Maxine Waters, the top Democrat on the House Financial Services Committee, is floating the idea of guaranteeing all uninsured depositors in the future. 

“Are we going to make sure that we take care of the uninsured in the way that we did with this fallout from Silicon Valley Bank?” the California lawmaker said in an interview. “I don’t know, but I will have to put it on the table.” 

Waters didn’t commit to backing legislation for the idea but said that she’s looking at different legislative solutions for what she called regulatory shortcomings that allowed Silicon Valley Bank to mismanage its liquidity risk. Waters, like other Democrats, wants to revisit the 2018 clawback of some requirements for midsize banks like the failed Silicon Valley Bank — which was based in her home state — and Signature Bank. 

Rep. Maxine Waters
Rep. Maxine Waters of California, the ranking Democrat on the House Financial Services Committee, said that expanded deposit insurance legislation could be coming.

Andrew Harrer/Bloomberg

“There are a number of issues to be looked at, everything from the uninsured to stress testing to understanding what rules should be in place for how you determine that your balance sheet assets are not worth today what they could have been some time ago because of inflation and the increase in interest rates,” she said. “I’m sure some of it will need legislation.” 

Any losses associated with the resolution of Silicon Valley Bank or Signature Bank after their failures and extraordinary action by regulators to backstop uninsured depositors will come from the Deposit Insurance Fund and will be recovered by a special assessment on banks

“That fund is paid for by the premiums that are paid by the banks,” Waters said when asked about the fee impacting small banks whose balance sheets don’t have the same interest rate exposure, unlike the $209 billion-asset Silicon Valley Bank. “We’ve had no discussion about raising those amounts. It is very safe, [and] it is very secure now with ample assets by which to take care of the uninsured.” 

While Democratic lawmakers like Waters have called for overturning some 2018 rollbacks of Dodd-Frank era regulations around midsize banks, banking industry groups have started to push back on that idea. 

“To the extent that these banks’ failure reflected liquidity weaknesses, the liquidity coverage ratio — the liquidity rule that was eliminated for most bank holding companies with less than $250 billion in assets after [the 2018 legislation] — likely would not have prevented either bank’s problems, and might have made them worse,” said the Bank Policy Institute in a statement. “Although the LCR does require banks to hold a large pool of ‘high-quality liquid assets,’ it strongly encourages banks to hold primarily government securities for that purpose — precisely the securities that SVB and Signature held, exposing them to losses when the Fed raised rates.” 

Waters said that she and Financial Services Committee Chairman Patrick McHenry, R-N.C., have agreed to hold a hearing “as early as we possibly can” on Silicon Valley and Signature banks, making it a bipartisan issue. 

“There are those that don’t like regulation and have been involved in the deregulation that has been done,” she said. “And of course there are those of us who really do believe we have to have credible regulation in order to protect the people in this country who trust their money to the banks and expect for it to be there when they want to get it out.” 

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