Community banks don’t need millions of dollars of deposit insurance

Sitting in the lobby of my community bank in Edmond, Oklahoma, I see the faces of small-business owners, teachers and city employees who trust us with their livelihoods. They want stability, transparency and fair rules that allow community banks to keep serving them.

The bank failures of 2023 reignited debate over deposit insurance limits. A Senate proposal would raise the FDIC insurance cap on non-interest-bearing accounts to $10 million, a move presented as helping depositors and community banks but that increases risk and shifts costs to Main Street. Remarkably, the proposal also extends to credit unions, transforming their balance sheets beyond members with common purpose to scaled deposits.

At Citizens Bank of Edmond, where I am CEO, about 90% of deposits are fully insured through a combination of tools. Nationally, 99% of accounts fall below the current $250,000 threshold. For the small number of businesses, municipalities and nonprofits that need more protection, proven avenues already exist. Reciprocal deposits and Federal Home Loan bank letters of credit have restrictions that promote sound risk management by limiting their use by stressed institutions. Only well-managed banks can extend those protections, minimizing risk to the overall system. Through these methods, my bank can offer tens of millions of dollars of FDIC coverage.

Some institutions, including Silicon Valley Bank, failed to use those tools effectively. In SVB’s case, the failure was compounded by weak regional regulatory oversight, concentrated deposits and poor interest-rate risk management. When that crisis unfolded, community banks across the nation acted quickly to communicate with customers, review coverage options and strengthen trust. Stability maintained across Main Street banking.

Since SVB’s collapse, deposits at local institutions have continued to grow, earned through trust rather than bailouts. That trust is the foundation of community banking. Any change to deposit insurance must be data-driven and fully transparent about the costs and who bears them. A higher limit might be justified, but only with clear evidence that it would strengthen stability rather than weaken the Deposit Insurance Fund. Policymakers should understand the cost before sending the bill to every bank in the country.

Raising the coverage cap 40-fold would invite moral hazard. Even well-intentioned banks could find ways to skirt the limits by offsetting non-interest restrictions through higher yields on other deposits, customer rebates or incentive programs that effectively extend insured benefits beyond their purpose. Such behavior would distort competition and weaken the discipline that deposit insurance is meant to preserve. No regulation can fully prevent that risk.

This proposal would also drain the Deposit Insurance Fund, the backstop that underpins public confidence in the banking system. Supporters claim smaller banks would not face higher premiums immediately and that larger institutions could replenish the fund over a decade. The risk to the FDIC, however, would begin immediately. It would be like issuing a home insurance policy today and collecting payment 10 years later. No insurer works that way, nor should taxpayers. The outcome would be predictable: weaker banks exploiting new coverage, the fund shrinking faster, and all banks, including the smallest, paying more to rebuild it later. Another special assessment during a downturn is the last thing community banks need.

The extension of $10 million of coverage to credit unions, already enjoying significant regulatory advantages, would tilt competition further against local banks at a time when credit unions are acquiring them at record pace. It also opens small banks to more regulatory burden because the government’s risk is higher.

The Trump administration has shown commitment to community banking, including appointing a former community banker as vice chair of supervision at the Federal Reserve, and officials have given countless speeches reinforcing our importance. This leadership benefits community banks.

Deposit insurance expansion at this scale is not the right next step. Policymakers should focus on reforms that strengthen community banks and the customers we serve.

Regulatory tailoring must be meaningful, not symbolic; the 2,000-page rulebook for trillion-dollar institutions should not apply to a bank serving one county. Lowering community bank capital requirements and exempting small banks from complex accounting rules would free resources for community investment.

When Silicon Valley Bank collapsed, community banks held firm. We kept lending, reassured customers and absorbed deposits that fled larger institutions. The story brings to mind It’s a Wonderful Life. Community banks are still run by George Baileys who know their customers by name. This deposit insurance proposal encourages banks to stretch the limits when times are good with the Baileys paying the price.

A stronger banking system will not come from insuring every dollar. It will come from trusting and empowering the banks that are accountable to the communities they serve.