Congressional action on deposit insurance remains elusive months after the failures of Silicon Valley Bank, Signature Bank and First Republic Bank.
Lawmakers had initially called for changes to the deposit insurance system after the FDIC lifted its $250,000 limit to protect uninsured depositors at the three failed banks. In early May, the FDIC outlined three options to reform deposit insurance, including maintaining the current $250,000 limit; extending unlimited coverage to all depositors; and a targeted offering, where business payment accounts have much higher coverage than other accounts. In favoring the targeted option, the agency said keeping the system as is would not adequately address run risk, and found that unlimited deposit insurance would make banks less careful in management practices.
On July 21, Sen. J.D. Vance (R-Ohio) introduced a bill that would grant unlimited deposit insurance to non-interest-bearing transaction accounts. The legislation would apply to banks with less than $225 billion in assets and all credit unions. The fate of Vance’s legislation remains unclear.
The Republican-controlled House of Representatives and Democrat-controlled Senate haven’t committed to making any changes. Senate Banking Committee Chair Sherrod Brown (D-Ohio) didn’t commit to raising the insurance limit during a July 20 committee hearing. Ranking Member Tim Scott (R-S.C.), who has announced his presidential candidacy for 2024, said raising the deposit insurance limit will need to be paid for with fees and could result in fewer credit options.
“The costs of these increases will most likely be borne by our small businesses and everyday consumers, in the form of higher fees and potentially decreased credit availability,” Scott noted. “And like with any proposal, we must evaluate the benefits and the burdens. Any potential reforms will not operate in a vacuum. We have to look and understand how our existing deposit insurance regime works and really see how it interacts with our broader financial system.”