Higher FDIC limits can protect more of your bank account losses
In a rare moment of Bipartisan Accord in Washington, DC, Sen. Warren, D-Mass. – A typical Scott critic.
One bipartisan proposal, The Great Road Safety Act, will provide extended deposit insurance coverage up to $10 million for depositors with a non-interest bearing purchase account. Another proposal would increase deposit insurance to $20, but only for business checking accounts, and only for banks with $250 billion or less in assets.
Or it could be a big deal: FDIC insurance currently covers customers so they won’t lose money in the event of a bank failure up to $250,000 Depositor up to $250,000
“I would say it’s a bit of an overshoot,” said Alexander Youwum, an equity research analyst at CFRA, an investment research firm.
The limit has not been adjusted for inflation even though the aggregate amount of bank deposits has grown significantly, he adds. While more than 99% of bank accounts hold less than $250,000, almost half of bank deposits – whopping $7 trillion Overall – not covered by FDIc insurance.
There is historical precedent for expansion. Authorities raised the limit in 2008 to $150,000. Market watchers like Luke Lloyd, President and CEO of Lloyd Financial Group, say now is the time for another review.
“The $250,000 limit was raised during the financial crisis and hasn’t been raised since then, despite the high rates of home and business pay,” Lloyd said. “It’s the right time to cover it quickly so it reflects today’s financial realities.”
Small and medium-sized banks say that increasing deposit insurance will help them bring in skittish customers in times like 2023 fall at Wilicon Valley Bank, the signature bank of the Republic and the First Bank of the Republic. The Independent Community Banks of America, a group of small consumers, sent a letter in support of a major road protection law for passengers, calling it a “major step” that would benefit small banks and their customers.
The move to raise the $250,000 cap after those bank failures in 2023 has risen, but today’s announced campaign may have enough momentum to go the distance. Bessent support is great too; Although lawmakers will do the heavy lifting, a higher branch purchase sends a signal to legislators and conservatives alike.
At the Federal Reserve’s Community Banking conference last month, it said the push to “shrink the playing field” for small banks, which people consider as a risk to them is “too big to fail” their partners.
In accordance with Chris Nichols, Director of Capital Markets at SouthState Bank, addressed the Winter Haven, Fla. “What this does is protect our community banking environment in the US, which is critical to keeping money close to our communities,” the email said.
It can also give customers More Choice by reducing integration in the banking sector. The number of small banks has decreased by 45% in the last 15 years.
Even though the average American may not have anywhere near $250,000 in their bank account, increasing the FDIc limit will provide indirect benefits, Lloyd said.
“When wealthy individuals and small businesses worry about deposit safety, they naturally move money to ‘too big to fail’ institutions,” they explain. “That frees up money from regional banks and the Community that keeps the local economy safe. Increasing FDIC coverage keeps a lot of money in local communities – the lifeblood of small business lending.”
Despite bipartisan support, however, this push was met with resistance from the Hensioth banks. This page Wall Street Journal characterized the prospect of higher deposit limits as a “Nightmare situation for the nation’s major banks.”
Advocates of lower government laws opposed joint letters to lawmakers in the Senate Banking committee that changed the current insurance limits, which will carry the lion’s share of the FDIC’s higher limits. (Deposit insurance is paid for by banks, not taxpayers or bank customers.)
Opponents of expanding consumer ‘and small business insurance’ and ‘deposit insurance opportunities to warn that “moral hazard,” predicting that the limits of generous insurance can encourage banks dollars dollars. But supporters of the higher limit say that so-called “too big to fail” institutions already enjoy this type of coverage on an arbitrary basis. MegaBanks such as JPMorgan Chase benefited in 2023 when customers were forced to withdraw money from small banks – $ 119 billion in one week – because there were expectations that the government would make them go back or do large bailouts, as happened during the financial crisis.
Critics have also suggested that major banks may return higher premiums for FDIc to raise the limit that would need to reduce services and travel costs for bank customers. CFRA’s Yokim acknowledges the possibility that banks, especially large banks that pick up most of the tab for higher fees, can pass the cost on to customers. That would mean lower deposit rates and higher loan rates.
On the other hand, higher FDIc insurance would make small banks more competitive, giving consumers more choice, he said.
“The big banks are not well known for offering services that are customized to your specific needs,” he said. “Helping the younger guys would be good because if they do better, they can compete better.”
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