House Republicans have vowed to oppose any comprehensive federal guarantee for bank deposits above the current $250,<> limit.
This opposition would pose a major obstacle for regulators with tools to secure these deposits and reduce depositors' rush to withdraw, but it needs congressional approval.
The Freedom Caucus of House Republicans said in a statement that the Federal Reserve should undo the extraordinary financing mechanism it set up on March 12, which allows banks to increase borrowing from it to cover deposit outflows.
The group added that "any comprehensive guarantee on all bank deposits ... "It sets a dangerous precedent that simply encourages irresponsible behavior in the future to be paid for by those who abide by the rules."
Bankers and business banking groups had sought blanket guarantees from the Federal Deposit Insurance Corporation to counter the crisis sparked this month by the collapse of Silicon Valley Bank (SVB).
The alliance of medium-sized U.S. banks has called on U.S. Treasury Secretary Janet Yellen and key regulators to extend the FIA's coverage of all deposits by two years to restore their confidence.
First Republic Bank losses
MEANWHILE, FIRST REPUBLIC BANK SUFFERED HEAVY LOSSES ON THE NEW YORK STOCK EXCHANGE, WITH SHARES FALLING 47% AS LIQUIDITY CONCERNS WIDENED.
Investors remain worried about the bank's future despite major U.S. banks injecting $30 billion of cash into the bank last week.
Standard & Poor's (S&P) downgraded First Republic on Sunday to junk and said the latest cash injection may not solve its liquidity problems. Moody's took the same step last weekend.
Huge support to save Swiss Credit Suisse
In Switzerland, Swiss banks Credit Suisse and UBS could benefit from state and central bank subsidies of about 260 billion Swiss francs ($280 billion), a third of the country's gross domestic product, after their merger to protect Switzerland from global financial turmoil, documents showed.
Swiss authorities announced on Sunday that UBS had agreed to buy rival Credit Suisse in a strong merger aimed at avoiding further disruption in the global banking sector.
UBS said it would pay $3.2 billion to acquire the 167-year-old Credit Suisse, while the government said UBS would also incur initial losses of $5.4 billion due to the liquidation of financial contracts and other risky assets.