Banking Groups: No Clear Consensus on Deposit Insurance Changes
Learn why no clear agreement could be reached on deposit insurance coverage at a House roundtable on increasing the deposit insurance maximum.
Credit union trade groups, absent from House roundtable, have stressed need for parity between bank and credit union accounts.
If House Democrats were seeking a consensus Friday among banking groups on whether the deposit insurance maximum should be increased, they did not get it.
Banking groups told a roundtable sponsored by House Financial Services Committee Democratic members that they should be cautious in considering any increase in the $250,000 account insurance guarantee.
Backstory and Context
As a result of recent bank failures and the Biden Administration’s decision to guarantee all accounts at the failed banks, policymakers have been struggling with proposals to increase the maximum account guarantee level.
The FDIC recently suggested that the account guarantee be increased for certain accounts, such as payroll accounts.
In opening the roundtable, House Financial Services Committee ranking Democrat Rep. Maxine Waters of California said that based on the failures, “the current deposit insurance system should be strengthened so regulators don’t have to rely on emergency authorities in the future.”
No credit union representative testified at the hearing, but credit union trade groups have said that there should be parity between bank accounts and credit union accounts.
Inside the Roundtable
Banking trade group representatives urged members of Congress to go slowly in making any changes.
“The deposit insurance system has served the nation well,” said Jenna Burke, executive vice president and general counsel for government relations and public policy at the Independent Community Bankers of America. “Such changes should be at the margins.”
Burke and other witnesses said they are concerned that the bank failures led depositors to shift their money to “too big to fail banks.”
There is some evidence that this has occurred, Lev Menand, an associate law professor at Columbia Law School, told the Democrats. He said that in mid-March, the 25 largest banks received an inflow of $120 billion, while depositors withdrew $185 billion from banks with less than $100 billion.
Any decision to target changes to the deposit insurance system must protect community banks and small businesses, said Nicole Elam, president/CEO of the National Bankers Association, which represents MDIs.
What Happens Next?
Alison Touhey, senior vice president at the American Bankers Association, said an ABA task force is studying how best to attack the deposit insurance issue.
“The system works because customers have confidence in their banks and the FDIC,” she said, noting that the task force has not yet agreed on what, if any, changes should be made.
“There are no fast or easy answers,” Touhey added. “People are going to have different answers that depend on where they sit.”