Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. The road to expanding the deposit safety net is starting to get bumpy. The House Freedom Caucus — the conservative bloc that nearly derailed Kevin McCarthy’s speakership — is coming out swinging against a blanket backstop of uninsured bank deposits. — The group’s official position, released Monday, reads: “Any universal guarantee on all bank deposits, whether implicit or explicit, enshrines a dangerous precedent that simply encourages future irresponsible behavior to be paid for by those not involved who followed the rules.” — In other words, it’s a bailout. “I oppose any universal guarantee on deposits that will force American taxpayers to pay the costly burden for bailouts,” Rep. Ben Cline of Virginia said on Twitter. What it means MM outlined Monday how an expansion of deposit insurance — temporarily or permanently — is quickly becoming the financial policy discussion du jour in Washington. Some banks are pleading for more help with shoring up uninsured deposits as they see an exodus of money to the largest, “too big to fail” lenders. The swift backlash from the 45-member Freedom Caucus means policymakers and bankers have another major headache to contend with before going bigger. — Banks now have to weigh whether they want to deal with right-wing resistance if they think more deposit assistance is needed. Bank trade groups this week are figuring out how to come down on the issue. — The Freedom Caucus is casting its position as a protective move for smaller banks. “Republicans must oppose any effort to use this as justification to impose unnecessary, burdensome regulations on other small and mid-sized banks who bear no fault or responsibility,” the group said. “Similarly, these banks and their customers must not be forced to shoulder the costs for bailing out large depositors.” — It flies in the face of how senior House Republicans are trying to guide the broader GOP conference. House Financial Services Chair Patrick McHenry has taken the approach that lawmakers need more facts before determining the best path forward, and his leadership team has echoed that the focus should be on doing what it takes to maintain financial stability. They’ve been careful to foreclose any options that might be needed to avert deeper economic damage. Six Freedom Caucus members serve on McHenry’s committee. The bottom line: The prospects for an industry-wide backstop for uninsured deposits are murky. A permanent increase in the insured deposit limit would require an act of Congress — something that’s in question in light of the Freedom Caucus position. But a temporary, industry-wide guarantee initiated by the administration and regulators may also require lawmaker approval and be an even heavier lift. MM checked with various arms of government and bank legal experts Monday and got mixed signals on whether regulators could do it without Congress. — Former FDIC Chair Sheila Bair told Victoria Guida it’s “questionable” whether regulators can do it unilaterally. — “We did that during the [Great Financial Crisis], and Congress took the authority away in Dodd-Frank.” — She said U.S. officials could invoke fast-track procedures for congressional approval under Section 1105 of Dodd-Frank. It’s National Common Courtesy Day — Who knew? Please let me know what else I’ve been missing at zwarmbrodt@politico.com.
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