At Nomination Hearing, Warren Secures Agreement from Trump Treasury Nominee to Work on Raising Deposit Insurance Limits for Business Transaction Accounts
“Raising FDIC insurance limits is a common-sense policy that levels the playing field for the small and mid-sized banks that actually lend to small businesses.”
Washington, D.C. – Today, U.S. Senator Elizabeth Warren (D-Mass.), member of the Senate Finance Committee and Ranking Member of the Senate Banking, Housing, and Urban Affairs Committee, secured an agreement from Jonathan McKernan, nominee to be Undersecretary of the Treasury for Domestic Finance, on working together towards increasing the limit for deposit insurance for business transaction accounts to help level the playing field in our banking system. Republican Senator James Lankford had a similar exchange with Mr. McKernan at the hearing, underscoring the bipartisan interest in deposit insurance reform.
Below is the full transcript of Ranking Member Warren’s questioning with McKernan:
Ranking Member Warren: FDIC insurance is limited to $250,000. Above that, customers with bigger deposits are supposed to wait in line and hope they can recover a portion of their funds when a bank fails.
In March 2023, Silicon Valley Bank and Signature Bank blew up, creating the third- and fourth-largest bank failures in U.S. history. In order to prevent additional bank runs and a full-blown financial crisis, the Fed, FDIC, and Treasury took the extraordinary step of guaranteeing all—ALL—uninsured deposits at those banks. That meant that huge companies, like the venture capital firm Sequoia, crypto company Circle, and electronics company Roku, had billions of dollars in deposits and they didn’t lose a penny. FDIC made good on all of it.
Now I want to contrast that with what Senator Lankford said about the treatment of two small bank failures in Oklahoma and Texas in the years after SVB crashed. Local small businesses, like pharmacies, grocery stores, and construction companies that kept payroll and other money at these community banks, got $250,000 in FDIC coverage and lost millions of dollars of the uninsured balance.
People understand which banks will—and won’t—get bailed out if there’s trouble. In the week following SVB’s crash, $100 billion in deposits left smaller banks, while the largest 25 banks saw $120 billion in new deposits.
Mr. McKernan, you were a Board Member at the FDIC in 2023 when SVB and Signature collapsed and you saw some of these dynamics up close. Has it become clear to the market that, in the event of failure, depositors at giant banks will get fully reimbursed while depositors at small banks may not?
Jonathan McKernan: Senator I was at the FDIC during those events. What I would say is, by law, uninsured depositors are at risk of loss. There has been a developing market expectation to the contrary at least with respect to large banks. The events around SVPB and signature may have reinforced that market expectation
Warren: Mr. McKernan, can you explain the implications of this two-tier system on both the banking system and broader economy?
McKernan: As the Secretary said, he is focused on the mainstream. What that means as a practical matter for me is it will focus on community banks and on every main street there is a community bank all too often that is a community bank under pressure whether from a mounting compliance burden or this market perception that may advantage the largest banks. So I think a central issue for financial regulation is how we ensure community banks continue to play a role in the financial system of the future
Warren: One way to help level the playing field is to increase deposit insurance limits for business transaction accounts – bank accounts that businesses use to make payroll and rent. Banks that benefit from the increase would pay for this expanded coverage ahead of time through their regular deposit insurance premiums.
This would help smaller banks compete. It also would require big banks to start paying for some of the insurance coverage they've been implicitly receiving for free. If small and mid-sized businesses are protected, this could also limit the government’s impulse to bail out giant banks whenever trouble hits.
Mr. McKernan, this idea has received broad bipartisan support. Do you believe that Congress should increase deposit insurance limits for business transaction accounts?
McKernan: Senator, as I was discussing with Senator Lankford, the Secretary has spoken on this and expressed a real interest in exploring an increase in the cap on deposit insurance for business, payment accounts, that would obviously require legislation, that would require congressional action. But I did recently discuss this issue with him. He’s heard this issue over and over again from many, many community banks that he’s met with inside the Treasury and outside the Treasury. The bottom line here is the Secretary would be very eager to see legislation to that effect to move the cap up on deposit insurance for business and community banks.
Warren: Will you work with me and Chairman Scott on the Banking Committee to get this done?
McKernan: Yes, Senator.
Warren: Great. The giant banks don’t need another subsidy. Raising FDIC insurance limits is a common-sense policy that levels the playing field for the small and mid-sized banks that actually lend to small businesses.
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