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A bipartisan pair of senators will introduce legislation Wednesday that would give the Federal Deposit Insurance Corporation six months to decide whether to raise its cap on deposit insurance as high as $5 million for some accounts.
The bill from Sens. Bill Hagerty, R-Tenn., and Angela Alsobrooks, D-Md., first reported by Semafor, is far narrower than their earlier proposal to guarantee non-interest-bearing transaction accounts up to $10 million, which big banks panned as “a solution in search of a problem.”
Under the new approach, the FDIC could select its own threshold between $250,000, where it sits right now, and $5 million.
Treasury Department officials have signaled their support, people familiar with the talks told Semafor, and Sens. Jim Banks, R-Ind., Catherine Cortez Masto, D-Nev., Cindy Hyde-Smith, R-Miss., and Ruben Gallego, D-Ariz., have signed on. Rep. Frank Lucas, R-Okla., will introduce companion legislation in the House.
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Treasury Secretary Scott Bessent has spent months urging lawmakers to raise the deposit insurance cap, which he and Hagerty argued in an October editorial would correct “a competitive imbalance” stemming from big banks’ “perceived government guarantee” — customers’ assumption that officials will bail out big banks that fail in order to protect the broader financial system. In a February hearing, Bessent called the senators’ push “extremely important.”
Wednesday’s “bipartisan, bicameral bill advances the administration’s priority of preserving the central role of regional and community banks in the financial system of the future,” Hagerty said. He added that it’s “narrowly targeted” to prevent another “run on non-interest-bearing transaction accounts typically used to make payrolls by small businesses” like the one that contributed to Silicon Valley Bank’s collapse in 2023.
Community banks, midsize banks, and credit unions had joined progressives in praising the senators’ original bill for helping them compete with big banks. Big banks (and some community banks) had critiqued it for raising the cap by too much and for not relying on data to do so — both pieces of feedback that drove lawmakers to pivot in hopes of amassing greater support, a Senate aide said.
“This bipartisan legislation would require a data-driven process to increase deposit insurance coverage levels for business checking accounts at most banks and credit unions,” Alsobrooks said. “Responsibly raising the deposit insurance threshold will protect employees and businesses in times of crisis and strengthen our overall financial system.”
Unlike the Senate, the House is weighing multiple different paths forward on deposit insurance, which could lead to another clash between the Senate Banking and House Financial Services committees. Members are also currently at odds over how to proceed on housing legislation.
Lucas called Wednesday’s proposal “a targeted bill” that “ensures banks of all sizes continue to play a fundamental role in driving economic growth in their communities.”