Deposit insurance reform momentum slows in House

• Key insight: Deposit insurance reform might move more slowly in the House than the Senate as members expressed concerns about the overall cost. 
• What’s at stake: Some community bankers say they will ultimately pay more in assessment fees if a Senate proposal goes through. 
• Forward look: The Senate needs the support of House Republicans to pass the law, so it’s likely the proposal will be moderated from its current language. 

WASHINGTON — Lawmakers signaled less enthusiasm to quickly pass a massive hike in deposit insurance for some accounts, slowing progress on a bill that has made strong inroads in the Senate. 

Sens. Bill Hagerty, R-Tenn., and Angela Alsobrooks, D-Md., proposed a bill last month that would raise the deposit insurance limit for noninterest bearing business accounts to $10 million. 

Lawmakers on both sides of the aisle in the Senate have argued in favor of the bill, and a hearing on it in the upper chamber didn’t pry off any support due to concerns about the cost of the changes to small banks. The bill got the endorsement of the Independent Community Bankers of America after the lawmakers lowered the proposed deposit insurance limit to $10 million — down from an initial $20 million proposal — and built in some protections for community banks by exempting them from paying for the increase for the first ten years. 

The proposal also, critically, has the attention and backing of the Treasury Department and Treasury Secretary Scott Bessent, two sources familiar with the matter told American Banker — an interest that has Congress-watchers paying attention. 

But at a House Financial Services Committee hearing on Tuesday, House members — including prominent Republicans — seemed reluctant to push the Senate bill through unchanged, instead advocating for a slower approach that moderates some of the ideas in the proposal and that more keenly considers moral hazard. 

They heard from witnesses who offered a more critical view of the legislation than those in the Senate hearing. 

“My bank, we would ultimately pay higher assessment fees,” said Jill Castilla, CEO of Citizens Bank of Edmond, an Oklahoma-based institution, of the Hagerty-Alsobrooks proposal. “If there was a failure, we would be exposed to special assessments.” 

Hagerty and Alsobrooks ultimately need the sign-off of House Republicans to pass the proposal into law. Those Republicans’ relative lack of full-throttle support for the bill puts up a major obstacle for the proposal, and ultimately likely means that it gets parred down into something more palatable to the community-bank conscious House. 

“When it comes to deposit insurance reforms, there are no easy answers and choices always come with tradeoffs,” said HFSC Chair French Hill, R-Ark. “That’s why several discussion drafts have been [attached] to the hearing today, so that members can appreciate just how many ideas are out there.” 

Rep. Andy Barr, R-Ky., chairman of the subcommittee on financial institutions, said that he was concerned specifically about the cost of the Hagerty Alsobrooks bill. 

“The proposal would have the FDIC spread its recognition of insured deposits over a 10 year period in order to get the reserve ratio,” Barr said, and asked Americans for Tax Reform president and founder: “Does increasing insurance coverage 40x what it is today, but not really paying for it except for over a decade, does that make sense to you?” 

“Not particularly,” Nordquist said. 

Still, interest in pursuing some kind of deposit insurance reform — although perhaps not as ambitious as the $10 million proposal — persists across the aisle. It remains possible that Hill could usher the bill through the committee despite his own desire to make changes if the Trump administration  takes a more vocal interest in the issue, as happened earlier this year with deliberations on a Senate-originated stablecoin bill. 

The panel’s ranking member Rep. Maxine Waters, D-Calif., had a bill posted for the hearing that would, among things, give regulators the ability to establish a Transaction Account Guarantee Program for nine months in the event of a future emergency. That proposal mirrors another suggested by a group of state bank organizations as part of a package to address deposit insurance reform. 

Waters and other Democratic lawmakers cited the failure of the First National Bank of Lindsay and the treatment of the deposits there compared to those at Silicon Valley Bank, showing the continued political potency of that failure. 

“A  smaller bank in Oklahoma … was too small for regulators to use emergency tools to protect depositors, and the failure resulted in small businesses, churches and other customers with more than $250,000 to lose some of their money,” Waters said. “Small businesses that banked at SVB were protected by those that bank at this Oklahoma bank lost money.”