Which branch of the federal government has the power to federally guarantee Americans and their businesses deposits?
From todays NYT:
"Peter Conti-Brown, a financial historian and a legal scholar at the University of Pennsylvania, said the 2010 Dodd Frank law ended the option for the agencies to temporarily insure larger transaction accounts the way they did in 2008.
Now, he said, the regulators would either need congressional approval, or lawmakers would have to pass legislation to enable such a broad-based backstop for deposits. While regulators were able to step in and promise to protect depositors at Silicon Valley Bank and Signature Bank, that is because the collapse at those banks was deemed to have the potential to cause broad problems across the financial system.
For smaller banks, for which failures would be much less likely to have systemwide implications, that means that uninsured depositors might not receive the same kind of protection in a pinch.
In a nod to those worries, Janet Yellen, the Treasury secretary, suggested on Tuesday that even smaller banks could warrant a “systemic” classification in some cases, allowing the agencies to backstop their deposits.
“The steps we took were not focused on aiding specific banks or classes of banks,” Ms. Yellen said in a speech. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”
But the chances that such an approach — or another workaround that allows the government to take the action without passing legislation — would be effective are not yet clear.
Sheila Bair, who was chair of the F.D.I.C. from 2006 to 2011, said she thinks that the Biden administration should propose legislation that would let the F.D.I.C. reconstitute a bigger deposit insurance program and use a “fast-track” legislative process to put it in place.
While Dodd-Frank curbed the ability of the F.D.I.C. to restart the transaction account guarantee program on its own, it did provide for a streamlined process for future lawmakers to get it up and running again, she said.
“I hope the president asks for it; I think it would settle things down pretty quickly,” Ms. Bair said in an interview. “Deposit runs can pick up pretty fast and the F.D.I.C. needs to be able to react quickly.”
But some warned that enacting broad-based deposit insurance could set out a dangerous precedent: signaling to bank managers that they can take risks unchecked, and leading to calls for more regulation to protect taxpayers from potential costs.
Aaron Klein, a senior fellow in economic studies at the Brookings Institution, said he would oppose even a revamp of the 2008 deposit insurance because he thinks that it would be temporary in name only: It would reassert to big depositors that the government will come to the rescue.
“If we think the market is going to believe that these things are temporary when they are constantly done in times of crisis,” he said, “then we’re deluding ourselves.”
