US officials are studying ways they might temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis.

Treasury Department staff are reviewing whether federal regulators have enough emergency authority to temporarily insure deposits greater than the current US$250,000 cap on most accounts without formal consent from a deeply divided Congress, according to people with knowledge of the talks.

Authorities don’t yet view such a move as necessary, especially after regulators took steps this month to help banks keep up with any demands for withdrawals, the people said, asking not to be named describing confidential talks. Still, they are developing a strategy out of due diligence in case the situation worsens.

“We will use the tools we have to support community banks,” White House spokesperson Michael Kikukawa said, without directly addressing whether the measure is being studied. “Since our administration and the regulators took decisive action last weekend, we have seen deposits stabilise at regional banks throughout the country and, in some cases, outflows have modestly reversed.”

Still, the behind-the-scenes deliberations show there are concerns in Washington’s corridors of power as midsize banks call for broader government intervention after three lenders collapsed this month when uninsured depositors pulled their money, and as a fourth firm strives to avoid a similar fate. Shares of that one, First Republic Bank, tumbled an additional 47 per cent on Monday (Mar 20) as industry leaders tried to find a way to bolster the company’s finances.

One legal framework under discussion for expanding FDIC insurance would use the Treasury Department’s authority to take emergency action and lean on the Exchange Stabilisation Fund, the people said.

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That pot of money typically is used to buy or sell currencies and to provide financing to foreign governments. But the fund, created in the 1930s, has been used as a backstop for emergency lending facilities by the Fed in recent years. It’s the only pot of money under the full authority of the Treasury secretary, with other spending and financing under the jurisdiction of Congress.

“Due to decisive recent actions, the situation has stabilised, deposit flows are improving and Americans can have confidence in the safety of their deposits,” a Treasury spokesperson said in a statement.

Representatives for the FDIC and Fed declined to comment. The administration and independent regulators are grappling with the first banking crisis since the passage of the 2010 Dodd-Frank Act, a sweeping reorganisation of the financial regulatory system.

‘Dangerous precedent’

The Mid-Size Bank Coalition of America, which includes banks with assets as much as US$100 billion, urged regulators to lift the current cap on deposit insurance, according to a Mar 17 letter seen by Bloomberg. The organisation expressed concern that, if another regional lender fails, more depositors will move their money to the nation’s largest banks, regardless of the underlying health of their smaller competitors.

While some lawmakers, including Republicans, have said they are weighing changes to the current US$250,000 FDIC insurance cap, a number of House conservatives have come out against a 100 per cent guarantee.

“Any universal guarantee on all bank deposits, whether implicit or explicit, enshrines a dangerous precedent that simply encourages future irresponsible behaviour to be paid for by those not involved who followed the rules,” the House Freedom Caucus said in a statement. BLOOMBERG