Zions Bank chief urges no Washington ‘knee jerk’ reaction to deposit insurance

(Reuters) – U.S. policymakers should avoid a “knee jerk” reaction in considering changes to bank deposit insurance guarantees in the wake of Silicon Valley Banks failure, the head of Utah lender Zions Bank told Reuters on Tuesday.

U.S. Treasury Secretary Janet Yellen, speaking at a banking industry summit in Washington on Tuesday, had pledged to safeguard deposits at smaller U.S. banks and intervene if needed.

When asked if the cap on deposit insurance coverage should be raised, Zions President and CEO Scott Anderson said any such changes should be carefully considered.

His comments showed that, in the wake of the failures of Silicon Valley Bank and Signature Bank, which sent shockwaves through the sector, desire among industry players was not unanimous for raising insurance coverage of bank deposits above the current $250,000 cap set by the Federal Deposit Insurance Corporation.

“It has to be thoroughly discussed, it has to be thoroughly debated, it cant be a knee-jerk reaction,” Anderson told Reuters on the margins of the American Bankers Association summit.

“Businesses have more deposits in banks than most consumers, how do you take care of their deposits？ Thats based on trust, issues like this have to be looked at carefully,” he said.

Some lawmakers in Washington, such as Senator Elizabeth Warren, have already called for Congress to approve an increase in the current deposit insurance limit, which was last updated in 2010. Some banks have also called for a higher cap as a way to reassure depositors spooked by the recent turmoil.

The Mid-Size Bank Coalition of America, which represents firms with less than $50 billion in deposits, called for a two-year universal deposit guarantee program in a letter sent to regulators on Friday, according to a copy seen by Reuters.

But other industry voices have not made similar calls, with some officials wary of the costs associated with higher deposit insurance, which is funded by bank fees, and also an increasing government footprint on bank operations, two industry sources said.

Zions Bank has among the largest shares of uninsured deposits in the U.S. at of $37.6 billion, which accounts for 53% of its total deposit base.

Prior to its failure earlier this month, nearly all of Silicon Valley Banks deposits were uninsured, prompting federal officials to guarantee 100% of them.

(Reporting by Douglas Gillison. Editing by Jane Merriman)