After US bank failures, agencies directed to analyse deposit insurance mechanism
May 02, 2023
Washington [US], May 2 : Following the closures of a few banks in the United States, the Federal Deposit Insurance Corporation (FDIC) directed the relevant agencies to conduct an analysis of the current deposit insurance framework and identify reform options as well as additional tools that can be used to maximize the efficiency of the system.
The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress to maintain stability and public confidence in the nation's financial system.
The regulator FDIC has released a comprehensive overview of the deposit insurance system and options for reform to address financial stability concerns stemming from recent bank failures.
The report, Options for Deposit Insurance Reform, examined the role of deposit insurance in promoting financial stability and preventing bank runs, as well as policies and tools that may complement changes to deposit insurance coverage.
"The recent failures of Silicon Valley Bank and Signature Bank, and the decision to approve Systemic Risk Exceptions to protect the uninsured depositors at those institutions, raised fundamental questions about the role of deposit insurance in the United States banking system," FDIC Chairman Martin J. Gruenberg said in a statement released with the report.
On Monday, US-based First Republic Bank was closed by the local regulators and entered into an agreement with JP Morgan Chase Bank to purchase and assume all deposits and assets of the troubled bank in a bid to protect depositors.
JPMorgan Chase Bank, National Association submitted a bid for all of First Republic Bank's deposits.
As part of the agreement, First Republic Bank's 84 offices in eight states in the US will reopen as branches of JPMorgan Chase Bank, National Association starting today. All depositors of First Republic Bank will become depositors of JPMorgan Chase Bank, National Association, and will have full access to all of their deposits.
One of the most prominent lenders in the world of technology startups, Silicon Valley Bank, which was struggling, first collapsed on March 10, after a run on the bank by the depositors. Its closure led to a contagion effect and the subsequent shutting down of other banks, including Signature Bank and First Republic Bank.
The collapse of a few regional banks in the US, which started with Silicon Valley Bank, has sent ripples across the global banking industry and posed fears of a contagion effect across economies.
