New legislation in Congress vows to protect Main Street, but the specifics suggest something else entirely. The proposal, called the Main Street Depositor Protection Act, would raise the Federal Deposit Insurance Corporation’s limit on certain accounts from $250,000 to as high as $10 million. It’s being sold as protection for small businesses and community banks, but upon closer inspection it’s little more than a safety net for the biggest bank accounts held by the top one percent of the top one percent.
Deposit insurance was designed to protect average depositors from losing their savings if a bank fails. It was never meant to shield multimillion-dollar corporate accounts or speculative depositors from the consequences of their own choices. Expanding coverage 40 fold doesn’t make the system safer; rather it makes it more perilous by freeing depositors from due diligence.
There is a sound economic principle that if you want less of something, tax it; if you want more, then subsidize it. By raising deposit insurance coverage 3,900 percent, the government, regardless of intent, is subsidizing greater risk. Investors will always seek the greatest yield for their money, and simple math dictates that a guaranteed $10 million threshold will diminish the cost of risk, thereby inviting more of it onto the ledgers of our nation’s banks.
But nothing in this world is free, so as risk becomes much less expensive for 8-figure depositors, its price tag becomes exorbitant to average consumers.
Taxpayers are told not to worry because the FDIC’s fund will cover the losses. But that money comes from higher assessments on its member banks, courtesy of its customers from whom banks derive their revenue. When Silicon Valley Bank failed, FDIC bailed out its depositors with $20 billion, 90 percent of which covered uninsured accounts. Any future FDIC redemption will likewise be forked over by U.S. consumers. Higher bank costs invariably hit consumers through higher fees, reduced services, lower returns or fewer loans. By raising the stakes to $10 million per account, the financial burden of a bailout will fall on the very people who deposit insurance was intended to protect.
Even the current system is stretched thin. The FDIC has had to raise its premiums to refill the insurance fund after recent bank failures. Now lawmakers want to multiply that risk by expanding coverage to multimillion-dollar business accounts. This isn’t reform, it’s the silent specter of even greater bailouts, biding their time in the shadows.
Supporters claim this is about fairness for community banks, yet most small banks aren’t asking for this and don’t need it. They already manage deposits responsibly and maintain strong relationships with their customers. The real pressure is coming from certain larger midsize and regional institutions hoping to attract high-dollar investors with an insurance policy financed by average Americans.
True fairness means letting markets work. It means holding investors and depositors accountable for the risks they choose. It means recognizing that every layer of government “protection” comes at the cost of fiscal discipline and economic freedom. When deposit insurance approaches the stratosphere, so does the possibility for disaster.
FDIC regulators were asleep at the switch from 2006 to 2008, and much can’t be said for their oversight in 2023 when two other regional banks collapsed along with Silicon Valley. Instead of picking consumers’ pockets to paper over their failures through higher deposit guarantees, FDIC should demonstrate vigilance and unfailing competence in their oversight responsibilities to regain the banking public’s trust.
America’s community banks don’t need more regulation, more guarantees, or more interference. They need a fair playing field and sound management where size and political access don’t determine survival. Expanding deposit insurance and burying them under new costs, assessments, and increased competition from the megabanks isn’t the answer to the question of how we make our banking system more secure.
The strength of our financial sector doesn’t come from the number of insured accounts. It comes from a system that abides by the traditional tenets of risk and reward, sound management, and impeccable oversight. This is the roadmap for lawmakers looking to deliver a more secure, stable, and trusted banking system to all of America, and especially into the heart of Main Street.
