Deposit insurance reform is about paychecks and communities

To the Editor,

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Recent commentary portraying deposit insurance parity as a giveaway to credit unions (ICBA’s support of higher FDIC coverage is a gift to credit unions, Dec. 16) misses the point and misleads readers about what is truly at stake. The proposal before Congress is not designed to advantage one type of financial institution over another. It is a practical response to a weakness in the system that became impossible to ignore during the banking turmoil of 2023.

When several banks failed, fear spread rapidly. Depositors didn’t pause to study balance sheets or charters. They moved money wherever they believed it would be safest. In that moment, the message to small businesses and local governments was clear: If your institution was not among the very largest, your deposits might be at risk. 

That perception alone triggered massive outflows from community-based institutions, even when those institutions were well managed and well capitalized.

The core problem is that the current deposit insurance limit no longer reflects how the modern economy functions. Small and midsize businesses routinely hold balances far above the existing cap to cover payroll, taxes, rent and suppliers. Those funds are not investments. They are working capital. 

When they become trapped or uninsured, employees miss paychecks and local economies suffer immediate harm.

The proposed reform addresses this issue in a focused and responsible way. It extends greater protection only to certain transaction accounts used for day-to-day business operations. It does not create unlimited insurance, nor does it shift costs to taxpayers. It simply ensures that money intended to pay workers and keep essential services running is not the first casualty of a confidence crisis.

Critics often pivot to arguments about the tax status of credit unions, but that debate has little to do with deposit insurance. 

Credit unions are not for profit cooperatives that return earnings to their members through better rates and lower fees. Their structure and regulation are well established. Using tax policy as a distraction does nothing to address the real risk, which is the continued erosion of trust in local financial institutions.

This issue is not about competition between banks and credit unions. It is about preventing unnecessary economic damage when fear drives rational people to move their money. A system that funnels deposits toward the largest institutions at the first sign of stress weakens communities and accelerates consolidation.

Deposit insurance reform is a Main Street solution. It protects paychecks, supports small employers and restores confidence in community finance. Framing it as a special favor to credit unions may score rhetorical points, but it does a disservice to the workers and businesses who stand to benefit most.