Treasury Secretary Scott Bessent and Senator Bill Hagerty (R-TN) are doubling down on their efforts to raise federal deposit insurance limits for certain financial institutions, despite some strong arguments against their plan. This issue revolves around the Main Street Depositor Protection Act, bipartisan legislation that would raise the deposit insurance limit from the current $250,000 limit to $10 million for accounts at banks and credit unions with under $10 billion in assets. As NTU has argued previously, the proposal would ultimately increase moral hazard, raise costs for consumers and taxpayers, and increase government involvement in the financial system.
The legislation is well-intentioned—after all, community and regional banks are the lifeblood of many local economies. Unfortunately, increasing the insurance cap to 4,000% of the existing level, and only for some depository institutions, represents an enormous intrusion by the federal government for the benefit of a subset of the banking industry. The most effective way to level the playing field is to reduce government barriers that have harmed smaller institutions, not for the government to choose favorites.
As NTU wrote to the Senate Banking Committee earlier this month, we strongly oppose passage of the Main Street Depositor Protection Act either as a standalone bill or as part of a larger legislative vehicle. We specifically oppose the legislation because:
Data show that 99% of accounts are already insured under the current $250,000 limit, meaning an increase to $10 million would only help the wealthiest depositors. Raising the cap to $10 million would cover fewer than 1% of accounts, overwhelmingly benefitting business and institutional depositors, while shifting risk to taxpayers and consumers.
Eligibility for this generous insurance increase is for credit unions and banks under a certain asset size, which is effectively picking winners and losers in the banking sector. It would be inequitable to leave the top 130 banks out of this benefit while requiring these institutions to subsidize the system. The federal government shouldn’t create an arbitrary line that only benefits some financial institutions.
An estimate from the Taxpayers Protection Alliance indicates these costs could top $30 billion in higher premiums over a ten-year period, or roughly $3 billion per year. As is typically the case with taxes, fees, and regulatory burdens, banks would ultimately pass along these costs onto consumers or shareholders. This could mean higher fees, a reduction in lending, or a hit to the bottom line should a bank decide to “eat” the cost.
Our continued opposition to the Main Street Depositor Protection Act doesn’t mean there aren’t areas in this space that should be addressed. It has been almost two decades since Congress last raised the FDIC cap, and it would be prudent to explore increasing it gradually. However, that should only occur with a reasonable and factually supported amount that is not dependent on the size of the depository institution. At the same time, raising the limit is not the best path toward solving some of the challenges immediately facing the sector.
As an alternative, we offer other solutions to help small financial institutions:
Federal regulators need to do a better job. One of the strongest arguments made by Sec. Bessent and Sen. Hagerty is the perceived notion that big banks are less likely to fail compared to regional and community banks, meaning a depositors’ money is “safer.” It seems that, far too often, federal and state bank regulators are asleep at the switch and not fulfilling their obligations to adequately examine the safety and soundness of financial institutions. Better utilization of existing supervisory functions can ensure bank balance sheets are healthy and not subject to disproportionate risk that threatens bank runs at smaller banks. If there are suggestions that smaller institutions have for stronger oversight, they should be proposed.
Congress should address credit unions’ unfair advantage over community banks. Some of the biggest competition facing regional and community banks occurs from tax-exempt credit unions, which benefit from a tremendous competitive advantage since they do not pay federal income tax and are exempt from many onerous regulations. The debate surrounding the credit union tax exemption and transparency is an important matter for all taxpayers, as it is fundamentally about ensuring fair and equitable compliance with the tax code. With many credit unions growing significantly in both size and scope, and, in many cases, using their tax-free advantage to purchase smaller banks, it is time for Congress to reevaluate the tax exemption and other tax-related provisions governing credit unions.
Reduce regulations across the board. The best way to help community banks thrive is to reduce unnecessary, one-size-fits-all regulations that were designed for Wall Street giants but suffocate small, relationship-driven lenders. Community banks don’t have the compliance armies or technology budgets of megabanks, so complex reporting and capital requirements drain resources that could otherwise support small businesses, farmers, and homeowners. Tailoring rules to reflect size and risk—not punishing smaller institutions for problems they didn’t create—would free up capital, lower costs, and restore local lending capacity. Smart regulatory relief, not blanket deregulation, is how we ensure community banks remain the backbone of Main Street finance.
Study how to increase the safety of business accounts. The FDIC should conduct a study that explores how many small business accounts have assets over $250,000, and bring stakeholders together to determine solutions specifically for small businesses.
If Congress genuinely wants to support Main Street banks and their customers, the smart path forward lies not in blanket guarantees, but in preserving incentives for safe behavior, reducing burdensome regulation, and crafting a regulatory environment where banks of all sizes can thrive. It would be a significant policy error to have the government 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.