Lawmakers Call for Higher Deposit Insurance Limits for Big Banks

Democrats and Republicans alike want big banks to up their insured deposit limits.

As the Wall Street Journal (WSJ) reported Wednesday (Oct. 29), both Treasury Secretary Scott Bessent and Sen. Elizabeth Warren — a Democrat from Massachusetts and longtime financial watchdog — are calling for raising the $250,000 limit on insured deposits.

This alliance, the report said, is helping fuel efforts from midsized banks who argue that higher caps would prevent bank runs like the ones seen at Silicon Valley Bank (SVB) and Signature Bank in March of 2023. Their efforts have helped lead to a Senate bill that proposes increasing the insurance limit up to $10 million on certain accounts.

According to the WSJ, that bill — co-sponsored by Sen. Bill Hagerty (R-TN) and Sen. Angela Alsobrooks (D-MD) — would apply the $10 million limit only to the type of accounts at the center of the 2023 bank collapses, or to those normally used by businesses for payroll and other operational expenses.

Silicon Valley Bank, which had a number of technology startups and high-net-worth venture capitalists as clients, held a high number of so-called non-interest-bearing transaction accounts. Before the run on that bank, more than 94% of its deposits were uninsured.

After the collapse, the government said it would make an exception to the insurance policy and make all depositors whole, so as to keep the crisis contained. Under the proposed bill, larger banks would not be eligible for the additional insurance on those types of accounts, but would still have access to the $250,000 maximum payout for all accounts.

“We want to get back to leveling the playing field,” Bessent said at a recent Federal Reserve conference on community banking.

While he hasn’t endorsed any legislation, the WSJ said, Bessent has been campaigning for the Senate to advance the Hagerty-Alsobrooks bill.

The report adds that big banks have thus far been critical of the legislation, questioning the thinking behind the $10 million limit.

“A massive expansion in FDIC insurance is unwarranted and would do little to improve the fundamental determinants of bank safety and resilience,” said Sean Campbell, head of policy research at the lobby group Financial Services Forum.

Meanwhile — as covered here last month — medium-sized banks have been lobbying lawmakers for help following the SVB collapse.

Testifying before a Senate committee, Bob Harrison of the Mid-Size Bank Coalition of America, said there had been “rapid digital-age deposit flight” in March of 2023, and said “in an era of smartphones and social media, confidence can evaporate in hours or minutes—depositors no longer wait in line outside a branch; they tap a screen and billions can vanish almost instantly.”

Harrison, also CEO of First Hawaiian Bank, added that “the 2023 turmoil did not see deposits leave the U.S. banking system — they left smaller banks for the perceived safety of larger ones,” leading to a system where bigger banks have a backstop but smaller banks “must pay a premium to retain uninsured funds.”