From Yahoo Finance, March 15:
When the Biden Administration announced on Sunday that customers of collapsed Silicon Valley Bank and Signature Bank would receive a full return of their lost deposits, it tapped a single exception to banking law that otherwise caps protection for cash and cash equivalent deposits at $250,000.
The exception, known as the Systematic Risk Exemption (SRE), is a caveat in the 1991 Federal Deposit Insurance Corporation Improvement Act (FDICIA), a law that requires that the Federal Deposit Insurance Corporation (FDIC) impose the “least cost” on taxpayers when it uses its Deposit Insurance Fund (DIF) to wind down failed banks.
The law — which limits the FDIC's power to guarantee deposits — emphasizes that the agency must choose the least costly method, even if doing so inflicts losses on a failed bank's uninsured depositors, creditors, and shareholders. In theory, the statute incentivizes government officials to pay out no more than the act requires.
However, the exception, invoked four times in response to the 2008 financial crisis and pared down under the Dodd-Frank Act, can extend reimbursement to uninsured deposits when the U.S. Treasury Secretary decides that the additional FDIC assistance would lessen “serious adverse effects” to economic conditions or financial stability, otherwise bound to happen under the “least cost” response. To use that authority, the Secretary must first obtain authorizing votes from two-thirds of the FDIC’s board and two-thirds of the Federal Reserve’s Board of Governors, plus consult with the president....
....MUCH MORE
