- Key insight: The bill would raise the deposit insurance limit for some business accounts to $10 million, halving the previous $20 million proposal.
- Forward look: The Independent Community Bankers of America support the bill, easing its path to passage.
- What’s at stake: The bill would likely compel large banks to pay for the increased deposit insurance premiums the bill would entail Large banks, under this bill, are likely to reap none of the benefits, but end up paying for the proposed changes.
WASHINGTON — A new bill from Sens. Bill Hagerty, R-Tenn., and Angela Alsobrooks, D-Md., would raise the deposit insurance limit for some business accounts to $10 million, halving the level of coverage envisioned in prior legislation.
The changes come after pushback from some community bankers over the cost of raising many deposit insurance for business accounts.
Regional banks, many of which saw deposit outflows to larger institutions during the 2023 Silicon Valley Bank crisis, have been pushing Congress for the changes. The largest and smallest banks, by contrast, have been less enthusiastic about the bill up to this point, primarily because of
The new bill addresses those concerns by exempting banks with less than $10 billion in assets from paying for the costs of the increase in deposit insurance by prohibiting the Federal Deposit Insurance Corp. from imposing special assessments or raising assessment fees on the smallest banks for the purpose of the bill.
Under the bill, Global Systemically Important Banks would not be allowed to offer business accounts with expanded deposit insurance, but the bill offers no similar carveout for those banks that was offered to the smallest banks. That means that the largest banks will bear part of the cost of the deposit insurance changes without getting any benefit.
The changes have already earned small banks’ support. The Independent Community Bankers of America officially endorsed the updated bill on Friday morning, saying that it would “promote balanced deposit-insurance coverage across the banking industry, further strengthen the deposit insurance system, and better support small businesses that use transaction accounts for payroll and other recurring expenses.”
“This improved coverage will expand confidence and stability of bank deposits used to fund loans and support local economies,” the group said in a letter to Hagerty and Alsobrooks.
With the support of ICBA, the bill has a much
The largest banks, meanwhile, opposed the legislation, setting up an inter-industry fight over the bill.
“Significantly increasing deposit insurance comes at a price. An expansion of the program could ultimately increase the cost of banking services for consumers and businesses,” said Financial Services Forum president and CEO Amanda Eversole. “At the same time, the erosion of market discipline and injection of moral hazard have proven to be disastrous for financial stability.”
Republican lawmakers and some Democrats seemed unsympathetic to the large banks’ arguments during a
“Just in case someone’s wondering, we did invite the big banks to be here today,” Scott said at the September hearing.
“Where are they?” Warren quipped.
“I don’t see them,” Scott said.
At that hearing, Hagerty — the bill’s main architect — defended the bill, saying that the Deposit Insurance Fund is already capitalized above its statutory minimum.
“To be clear, assessments are statutorily triggered when the Deposit Insurance Fund’s reserve ratio drops below its mandated minimum,” Hagerty said. “The DIF is currently over-budget — and just to be clear, the reserve ratio is adequate. [Th DIF has] exceeded its required mandatory level, and it’s actually trending upward.”