(Bloomberg) -- A coalition of midsize US banks asked federal regulators to extend FDIC insurance to all deposits for the next two years, arguing the guarantee is needed to avoid a wider run on the banks.

“Doing so will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce chances of more bank failures,” the Mid-Size Bank Coalition of America said in a letter to regulators seen by Bloomberg News.

The collapse this month of Silicon Valley Bank and Signature Bank prompted a flood of deposits out of regional lenders and into the nation’s largest banks, including JPMorgan Chase & Co. and Bank of America Corp. Customers spooked by the bank failures were taking refuge in firms seen as too big to fail.

“Notwithstanding the overall health and safety of the banking industry, confidence has been eroded in all but the largest banks,” the group said in the letter. “Confidence in our banking system as a whole must be immediately restored,” it said, adding that the deposit flight would accelerate should another bank fail.

The group cited remarks by Treasury Secretary Janet Yellen that the backstops put in place so far will protect uninsured deposits only if regulators found it “necessary to protect the financial system.” That’s a category unlikely to include the smaller banks represented by the MBCA.

The expanded insurance program should be paid for by the banks themselves by increasing the deposit-insurance assessment on lenders that choose to participate in increased coverage, the group proposed.

The letter was sent to Yellen, the Federal Deposit Insurance Corp., the Comptroller of the Currency and the Federal Reserve. 

Treasury spokesman Michael Gwin declined to comment, as did representatives for the FDIC, Fed and OCC.

Risky Bets

A spokesperson for Senate Banking Committee Chair Sherrod Brown said the Ohio Democrat believes any changes made to deposit insurance must protect small businesses and workers, not big investors. Americans shouldn’t pay the price for risky bets of others that don’t pay off — on Wall Street or in Silicon Valley, Brown’s spokesperson said.

Senator Elizabeth Warren favors lifting the FDIC’s standard $250,000 cap, possibly into the millions of dollars, the Massachusetts Democrat said in a CBS News interview on Sunday. She declined to say whether President Joe Biden’s administration is actively seeking to build support in Congress for raising the FDIC’s ceiling.

Deputy US Treasury Secretary Wally Adeyemo said Friday that, based on discussions regulators have had with banking executives, deposits at small- and medium-sized banks across the country had begun to stabilize and in some cases “modestly reverse.”

Brent Tjarks, a representative for MBCA, declined to comment on the letter. His group includes banks with assets of as much as $100 billion, and there are at least 110 members of the coalition. The organization was one of the groups that lobbied in favor of reducing some of the burdens the Dodd-Frank Act imposed on smaller lenders.

“It is imperative we restore confidence among depositors before another bank fails, avoiding panic and a further crisis,” MBCA wrote in the letter. “While the cost of deposit insurance is not insignificant, the likelihood of it being needed is much, much smaller should all deposits be temporarily insured.”

--With assistance from Christopher Condon and Max Reyes.

(Updates with Brown, Warren comments from ninth paragraph.)

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