McHenry warns of 'trade-offs' to raising deposit insurance

Andrew Harrer/Bloomberg

WASHINGTON — Rep. Patrick McHenry, R-N.C., the chairman of the House Financial Services Committee, chilled attempts to reform the deposit insurance limit, suggesting he's not ready to support legislation to raise the $250,000 limit. 

McHenry said at the American Bankers Association Summit on Wednesday that changing the deposit insurance limit "could have serious consequences for the financial system," and listed moral hazard and more bank consolidation as potential trade-offs. 

"We need to have a full understanding of what those trade-offs truly are," he said. 

He advocated for a slow, deliberate approach to post-failure legislation. Without support from McHenry, as the leading Republican in the House on banking issues, any kind of legislative reform would have to wait until some kind of political turnover to gain any traction. 

"It is too early to tell whether new legislation is necessary," McHenry said. "It is important to note that we cannot legislate confidence." 

While McHenry said that regulators' actions to shore up Silicon Valley Bank and Signature Bank's uninsured deposits after their failure was necessary to keep fear about the banking system from spreading to other institutions, he suggested a private sector solution would be a better option. 

While the Federal Deposit Insurance Corp. has found a buyer for most of Signature Bank, a deal remains elusive on Silicon Valley Bank. 

McHenry's comments come as he is slated to host important banking regulators next week, including Federal Reserve Vice Chairman for Supervision Michael Barr, Federal Deposit Insurance Corp. Chairman Martin Gruenberg and Treasury Under Secretary for Domestic Finance Nellie Liang, for testimony in the House Financial Services Committee on the banks' collapse and the regulatory response. McHenry said he is interested in finding out whether regulators' political interests motivated their actions.

"Did the administration allow its ideological lens to color its judgment?" he said. 

Regulators opened can of worms with Silicon Valley-Signature rescues

McHenry also pushed back on legislation to pull back S.2155, the 2018 law that allowed the Federal Reserve and other regulators to weaken oversight of mid-sized banks, arguing that had the full effect of Dodd-Frank still been in place, it wouldn't have had an impact on the failure of Silicon Valley Bank.

"Crisis politics is always bad policy," he said.