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Wall Street is digging in against a bipartisan proposal to dramatically expand deposit insurance.
The bill from Sens. Bill Hagerty, R-Tenn., and Angela Alsobrooks, D-Md., would guarantee business checking accounts up to $10 million — instead of just $250,000 — and expand that coverage to almost all financial institutions except big banks. Banks with less than $10 billion in assets would not have to pay into the fund for a decade.
Community banks have hailed the measure, which they argue promotes “balanced” coverage. Publicly and privately, big banks are arguing it goes much further than it needs to.
“Significantly expanding deposit insurance seems like a solution in search of a problem,” Amanda Eversole, president and CEO of the Financial Services Forum, told Semafor.
So far, they seem to be getting traction: Two senior Republicans on the Senate Banking Committee, Sens. Mike Rounds of South Dakota and John Kennedy of Louisiana, told Semafor they were still undecided on the bill.
“This is a debatable issue. It’s one that we just want to make the best outcome. And I don’t have my mind made up,” Rounds said. “I have no problems with an increase in the deposit insurance; the amount, I don’t know about.”
Said Kennedy: “I’ve heard from both sides — and I haven’t made a decision yet.”
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Congress was forced to reevaluate how the federal government backstops deposit accounts when Silicon Valley Bank collapsed in 2023. Big banks say there’s no proof that the proposed expansion would stop the same thing from happening again.
“We believe in a safe and sound banking system where financial institutions of all sizes, including community banks, thrive,” Eversole said. But “we first need to define the problem we are trying to solve and ensure we have data to support effective policy.”
Torn lawmakers say they sympathize with both sides: Smaller institutions want to level the playing field with bigger institutions that customers see as “too big to fail.” And those bigger institutions don’t want to pay more for a bigger Federal Deposit Insurance Corporation fund that won’t benefit them.
“They’re concerned, because the price to pay for that deposit insurance premium, so to speak, in many cases, is part of their role, and so they don’t like the idea of just having another cost added on,” Round said. “On the other side of it … everybody says, ‘They’re too big to fail. I’ll put my deposits with you.’”
Room for Disagreement
Smaller banks do have other ways of insuring bigger deposit accounts, including by spreading them across multiple banks — and some have said they prefer leaning on that strategy to “new federal mandates.” But it’s not just the proposal’s authors who say that bigger banks are just being selfish.
“They have effectively 100% deposit insurance for giant accounts for free. Why would they want to have to pay for it?” Sen. Elizabeth Warren of Massachusetts, the top Democrat on the Senate Banking Committee, told Semafor. “Whenever there’s a financial problem in the banking system, people with big accounts withdraw them from community banks and regional banks and put them into the too-big-to-fail banks because they know they’ll be fully protected.”
“But it’s not fair to the small banks, and it’s not fair to the US taxpayer who gets called on to bail out those giants,” Warren added.
Treasury Secretary Scott Bessent said earlier this month that he hoped lawmakers “will soon mark up an expansion of FDIC insurance on non-interest-bearing transaction accounts.” He added that he’d been “encouraged to see emerging bipartisan support.”
“Secretary Bessent’s assessment is exactly right: This targeted expansion of coverage is urgently needed,” Hagerty told Semafor in a statement. “It has been designed to expand coverage on critical accounts used for payrolls and transactions that keep our economy moving. This is an area where our local and regional banks play a vital role and this protection will significantly boost the stability of our nation’s banking system.”