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The road to expanding the deposit safety net is starting to get bumpy.
The House Freedom Caucus — the conservative bloc that nearly derailed Kevin McCarthy’s speakership — is coming out swinging against a blanket backstop of uninsured bank deposits.
- — The group’s official position, released Monday, reads: “Any universal guarantee on all bank deposits, whether implicit or explicit, enshrines a dangerous precedent that simply encourages future irresponsible behavior to be paid for by those not involved who followed the rules.”
- — In other words, it’s a bailout. “I oppose any universal guarantee on deposits that will force American taxpayers to pay the costly burden for bailouts,” Rep. Ben Cline of Virginia said on Twitter.
What it means
MM outlined Monday how an expansion of deposit insurance — temporarily or permanently — is quickly becoming the financial policy discussion du jour in Washington. Some banks are pleading for more help with shoring up uninsured deposits as they see an exodus of money to the largest, “too big to fail” lenders.
The swift backlash from the 45-member Freedom Caucus means policymakers and bankers have another major headache to contend with before going bigger.
- — Banks now have to weigh whether they want to deal with right-wing resistance if they think more deposit assistance is needed. Bank trade groups this week are figuring out how to come down on the issue.
- — The Freedom Caucus is casting its position as a protective move for smaller banks. “Republicans must oppose any effort to use this as justification to impose unnecessary, burdensome regulations on other small and mid-sized banks who bear no fault or responsibility,” the group said. “Similarly, these banks and their customers must not be forced to shoulder the costs for bailing out large depositors.”
- — It flies in the face of how senior House Republicans are trying to guide the broader GOP conference. House Financial Services Chair Patrick McHenry has taken the approach that lawmakers need more facts before determining the best path forward, and his leadership team has echoed that the focus should be on doing what it takes to maintain financial stability. They’ve been careful to foreclose any options that might be needed to avert deeper economic damage. Six Freedom Caucus members serve on McHenry’s committee.
The bottom line: The prospects for an industry-wide backstop for uninsured deposits are murky.
A permanent increase in the insured deposit limit would require an act of Congress — something that’s in question in light of the Freedom Caucus position. But a temporary, industry-wide guarantee initiated by the administration and regulators may also require lawmaker approval and be an even heavier lift. MM checked with various arms of government and bank legal experts Monday and got mixed signals on whether regulators could do it without Congress.
— Former FDIC Chair Sheila Bair told Victoria Guida it’s “questionable” whether regulators can do it unilaterally.
— “We did that during the [Great Financial Crisis], and Congress took the authority away in Dodd-Frank.”
— She said U.S. officials could invoke fast-track procedures for congressional approval under Section 1105 of Dodd-Frank.
It’s National Common Courtesy Day — Who knew? Please let me know what else I’ve been missing at zwarmbrodt@politico.com.
A message from the American Bankers Association:
ABA’s Washington Summit kicks off at 9:00 am ET this morning with bank leaders from across the country gathering in the nation’s capital. Hear from ABA President and CEO Rob Nichols and other key policymakers as they discuss the health of the banking system and the outlook for the economy.
DRIVING THE DAY
- The FOMC begins its two-day meeting … Treasury Secretary Janet Yellen speaks at the American Bankers Association’s Washington summit at 10 a.m. …
- Yellen ready to act if smaller banks face runs — In remarks to the ABA conference this morning, the Treasury secretary will say: “The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system. And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”
- First Republic may get another rescue — WSJ reports that JPMorgan Chase CEO Jamie Dimon is in talks with other big bank executives about investing in the troubled lender to boost its capital.
- The discussions are expected to continue when the CEOs gather at today’s previously scheduled Washington meeting of the Financial Services Forum, according to the FT.
- The scramble came as U.S. stocks closed up on Monday, following Sunday’s UBS-Credit Suisse deal. Shares of New York Community Bancorp rallied after subsidiary Flagstar Bank took over operations of Signature Bank.
- The FDIC is extending the auction process for Silicon Valley Bank, with bids on SVB’s private bank subsidiary due Wednesday and bids on the whole bank due Friday.
- McHenry had Signature fundraiser before collapse — Bloomberg reports that Signature’s board room was the location of a March 2 fundraiser for the House Financial Services chair. His campaign has decided it won’t process any of the contributions from the event.
- McHenry and Sen. Tim Scott on Monday asked the Fed and the FDIC for a comprehensive timeline of their activities overseeing Silicon Valley Bank and Signature, as well as the names of officials involved in supervision. They set a March 31 deadline.
- California’s financial regulatory agency announced a review of how it oversaw SVB. It plans to release a report by early May.
POLICY AND POLITICS
Biden vetoes ESG investing repeal with a dig at MTG — President Joe Biden on Monday issued his first veto, blocking the rollback of a DOL rule that permits environmental and social goals to be factors in the management of retirement investments. Biden used the opportunity to take a swipe at Republicans.
“This bill would risk your retirement savings by making it illegal to consider risk factors MAGA House Republicans don’t like,” Biden said on Twitter. “Your plan manager should be able to protect your hard-earned savings — whether Rep. Marjorie Taylor Greene likes it or not.”
REGULATORY CORNER
How to head off future ‘viral’ bank runs — Federal Financial Analytics is out with a new report looking at ways policymakers may try to prevent future social media-fueled bank runs in light of SVB’s failure. Among the potential ideas: A mandatory early-warning system when deposits near the $250,000 insurance limit, stricter liquidity rules and run-risk scenarios in stress testing.
FDIC pushback — A banking lawyer emailed MM about last week’s newsletter that explained FDIC thinking on the SVB sale the weekend the bank failed, noting that there is a systemic risk exception to the requirement that the FDIC pursue the least costly route for the deposit insurance fund.
“It is precisely this authority that the FDIC invoked on Sunday evening to guarantee all uninsured deposits,” the lawyer said. “So, presumably, the FDIC could have made that determination earlier to facilitate a loss-sharing arrangement that would have made a sale of SVB more likely, less disruptive, and ultimately less costly than what we see unfolding now.”
CRYPTO
SCOTUS to hear crypto case — Coindesk reports that the Supreme Court on Tuesday will hear arguments in its first-ever case on digital currency — an attempt by Coinbase to fend off class-action lawsuits.
FLY AROUND
Commodity market players stay optimistic — FT: “The banking sector turmoil that has spilled into energy and metal markets is likely to be limited in duration with only minimal damage to the wider economy, according to some of the world’s biggest commodity traders.”
Macron still standing after retirement backlash — POLITICO: “Emmanuel Macron’s government narrowly survived a no-confidence vote in the French parliament Monday, after it pushed through a deeply unpopular pensions overhaul without a vote last week, sparking outrage and spontaneous protests across the country.”
Penta acquisition — The Washington-based consultancy is acquiring communications firm Copperfield Advisory.
A message from the American Bankers Association:
Join us virtually at 9:00 am ET this morning at ABA’s Washington Summit. Hear opening remarks from ABA President and CEO Rob Nichols, perspective from bank CEOs from across the country and a keynote address from Treasury Secretary Janet Yellen focused on the economy and the health of the banking system. Today’s program also includes Senator Steve Daines (R-MT), a member of the Senate Banking Committee and co-sponsor of the SAFE Banking Act, who will share his outlook for the legislation and more.
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Morning Money ... Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy.
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ABOUT THE AUTHOR: ZACHARY WARMBRODT ... Zachary WarmbrodtZach Warmbrodt has covered financial services for POLITICO since 2012. His reporting focuses on Washington's relationship with Wall Street and the broader finance industry, including banks, insurers and asset managers. Zach is a graduate of the University of Texas at Austin.
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