The Risks of Expanding FDIC Deposit Insurance

Since the 1930s, the federal government has used the Federal Deposit Insurance Corporation’s (FDIC) deposit insurance to justify its increased involvement in banking. Now, in the name of supporting community banks, some policymakers have proposed raising the FDIC insurance cap from $250,000 to $10 million. They claim that in the wake of the bank failures of 2023, depositors fled from small banks and moved their money to “too big to fail” institutions that enjoy implicit government backing. Increasing the FDIC insurance cap, these policymakers argue, will encourage depositors to stay with community banks.

Yet for nearly a century, Congress and the FDIC have continued to expand and increase federal involvement in banking, creating a complex web of regulation, increasing costs for consumers, and burdening American taxpayers. Despite these changes being implemented in the name of safety, a select few institutions still clamor for special protection.

The proposed expansion will magnify all these problems, making the system more fragile and less resilient, and forcing millions of Americans to bear its cost. Sadly, this latest expansion would come at a time when an incredibly small share of depositors even need additional coverage.

Join leading policy experts for a discussion on why expanding FDIC insurance is not only unnecessary but could also ultimately harm both the economy and the community banks it was designed to protect.

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