US officials are studying ways they might temporarily expand Federal Deposit Insurance Corp. 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 $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.

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Federal Reserve Chair Jerome Powell and his colleagues this week face one of their toughest calls in years: whether to raise interest rates again to fight stubbornly high inflation or take a timeout amid the most intense banking crisis since 2008. 

The decision over whether to raise interest rates by a quarter-percentage point is likely to hinge in part on how markets digest the forced marriage Sunday of two Swiss banking giants, UBS and Credit Suisse, and other steps to calm fears of contagion in the banking system. Fed officials’ two-day meeting concludes Wednesday.

The Fed has tried over the past year to telegraph its rate moves to avoid surprises and minimize volatility. Until now, it hasn’t confronted an abrupt and fluid crisis on the eve of a policy meeting. On Monday, investors anticipated the Fed would likely proceed with a rate rise, with interest-rate futures markets at midday implying a roughly three-in-four chance of a quarter-point increase, according to CME Group.

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Morgan Stanley’s Michael Wilson said the stress in the banking system marks what’s likely to be the beginning of a painful and “vicious” end to the bear market in US stocks.

“With the back-stopping of bank deposits by the Fed/FDIC, many equity investors are asking if this is another form of QE and therefore ‘risk on’,” the strategist — who correctly predicted the selloff in stocks last year and rebound in October — wrote in a note. “We argue it’s not, and instead represents the beginning of the end of the bear market as falling credit availability squeezes growth out of the economy.”

The S&P 500 will remain unattractive until equity risk premium climbs to as high as 400 basis points from the current 230 level, according to Wilson, who is known for being one of Wall Street’s staunchest bears.

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