The fundamental problem with this proposal is the enormous moral hazard it poses. If deposit insurance increases to $10 million, banks can adopt increasingly risky investment strategies, safe in the knowledge that the government will bail out their depositors if something goes wrong. Large savers, no longer concerned about the financial health of their bank, will stop monitoring institutional stability. This removes critical scrutiny of reckless behavior. If sophisticated corporate clients, with millions at stake, no longer scrutinize their bank’s balance sheet, who will? The result is predictable: banks profit when risky bets succeed, but taxpayers foot the bill when they fail.
The financial costs can be significant. The banking industry would face significantly higher FDIC premiums to maintain sufficient reserves for the expanded coverage – a 40-fold increase in the insurance limit for certain accounts. These costs would not be absorbed by the banks. They would be passed directly to consumers, through higher fees and initially lower lending and less favorable loan terms.
Supporters claim this would help Main Street, but the numbers tell a different story. Currently, more than 99% of US bank accounts already fall below the existing $250,000 limit. Small businesses typically have around $12,000 in their accounts – nowhere near the current limit. The real beneficiaries are large corporations with payroll bills in the millions of dollars, not mom-and-pop operations. This is essentially a wealth transfer from ordinary savers to the richest 1%.
Moreover, the existing system already offers sufficient protection. During the 2023 banking crisis, when Silicon Valley Bank failed, regulators invoked emergency powers to protect all depositors, demonstrating that mechanisms exist to prevent a system collapse when really necessary. In addition, private sector solutions such as mutual deposit networks and sweep accounts already offer companies the ability to insure larger amounts without taxpayer guarantees.
The proposal also undermines the primary purpose of deposit insurance, which was intended to protect ordinary savers from losing their savings, not to protect companies from the consequences of poor due diligence. By subsidizing risk-taking among the wealthiest savers, we encourage exactly the kind of behavior that led to previous banking crises.
Finally, the FDIC’s own research shows that expanded deposit insurance increases borrowing costs and reduces lending—hardly the outcome proponents promise. Rather than strengthening community banks, this proposal would weaken market discipline throughout the banking system while concentrating risk on government coffers.
Rather than expanding federal guarantees, we need more market responsibility, not less. Banks must compete on financial strength and quality of service, and large savers must be responsible for choosing where to put their money. Increasing the insurance limit to $10 million takes us in exactly the wrong direction.
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