National Taxpayers Union Vice President for Federal Affairs Tommy Aiello on Thursday announced opposition to new legislation that would raise federal deposit insurance limits from $250,000 to $5 million, a 2,000% increase.
The Main Street Depositor Protection Act requires banks over a certain asset size to pay a larger amount into the insurance fund to cover the cost of expanded insurance, while smaller banks get a free pass into the fund. This change would increase the fees paid by the top 130 banks from this expanded coverage while still expecting them to help fund the deposit insurance system.
The legislation amounts to one group getting a government-backed guarantee, while others are left with the burden. It was introduced by Representative Frank D. Lucas (R-OK) and Senator Bill Hagerty (R-TN).
“When it comes to federal deposit insurance, Senator Hagerty continues to throw spaghetti at the wall to see what sticks. He first proposed a federal backing up to $20 million, then $10 million, and now his latest bill ‘only’ backstops $5 million. The constantly shifting versions of the Main Street Depositor Protection Act suggest the proposal is not grounded in clear data or a consistent policy rationale. We look forward to reading his next bill to see where the threshold falls.
“There is no need to adjust FDIC insurance caps. Although the current $250,000 limit has remained unchanged for nearly two decades, it already covers the overwhelming majority of Americans, with roughly 99% of depositors holding balances well below that threshold.
“Instead of this bill, Republicans in Congress should reduce unnecessary regulations and red tape across the banking sector, allowing institutions of all sizes to devote more resources to serving customers rather than navigating compliance burdens.
“Proponents of this legislation argue it would help community and regional financial institutions compete more effectively with larger banks, but it attempts to achieve this goal by granting them preferential treatment. Some estimates also estimate a higher FDIC cap will cost banks billions more in fees, which may ultimately be passed along to customers, as is typically the case with regulations and fees.
“Congress should not pick winners and losers in the financial sector when free-market options exist. Markets work most efficiently when they are allowed to function without heavy-handed government intervention. That should be the guiding principle for helping taxpayers, small banks, and the financial industry at large.”
National Taxpayers Union is the only free-market organization for taxpayers that unites effective advocacy with useful research about how to limit taxes, spending, and regulation at every level and branch of government—state, federal, administrative, and judicial.