FDIC urges deposit protection overhaul

The Federal Deposit Insurance Corporation of the US wants a sweeping overhaul of deposit insurance after recent bank failures partly drained a pool of money the government uses to protect lenders' clients.

The regulator highlighted the impact of technological changes and high concentrations of uninsured depositors in pockets of the banking system as reasons for a possible overhaul.

The FDIC said in its report that switching to a "targeted coverage" approach, where business accounts get more coverage than the current cap of US$250,000 (HK$1.95 million), would be the best option for financial stability as losses on those accounts may impact payroll and other operational functions.

Such a change, however, would require congressional action.

This came as the International Monetary Fund's chief said the rapid acceleration in interest rates "exposed vulnerabilities in the financial sector," warning that the banking industry needs to be on watch for additional risks.

Industry leaders need to "anticipate shocks and be ready to act when they occur because they will be coming," Kristalina Georgieva said.

Meanwhile, Morgan Stanley is said to have been preparing a fresh round of job cuts of 3,000 amid a renewed focus on expenses as recession fears delay a rebound in deal-making.

Separately, US President Joe Biden hailed regulators for facilitating a deal for JP Morgan to acquire First Republic Bank, saying it would help stabilize the US banking system and protect taxpayers.

Biden also summoned the four top congressional leaders to the White House next week after the Treasury warned the government could run short of cash to pay its bills by June.

Treasury Secretary Janet Yellen said in a letter to Congress that the agency will be unlikely to meet all US government payment obligations "potentially as early as June 1" without action by Congress.