Congress Should Extend Deposit Safeguard


While the banking system and the economic rebound remain fragile in northern Minnesota and across the nation, policymakers do have a tool they can use to further the progress we’ve made so far. Continuing to provide full deposit-insurance coverage for transaction accounts held by small businesses and municipal governments will go a long way toward shoring up the recovery at this critical time.

Shortly after the economic collapse, the Federal Deposit Insurance Corp. (FDIC) implemented complete coverage for noninterest-bearing transaction accounts. Basically, this means that bank deposits held by small businesses and municipal governments are insured beyond the $250,000 limit required by law. The bad news is this plan, which was put in place to stabilize the banking system and reassure depositors, is scheduled to expire at the end of the year. Congress must act now to ensure the program is extended for another five years.

Full deposit insurance had its place during the financial crisis, and that place hasn’t changed.  The program was implemented to prevent the sudden withdrawal of deposits, and it has been extremely successful in minimizing disruption in the banking system. If it is allowed to expire on Dec. 31, coverage for transaction accounts will revert to the $250,000 limit. More than $1.4 trillion in transaction-account deposits will become uninsured overnight. Because the financial system remains fragile, community bankers like me are concerned that allowing this deposit-insurance program to expire will have negative consequences for Main Street small businesses and on our nation’s economic recovery.

The good news is that Congress has the power to extend this FDIC insurance program and promote further economic recovery. By doing so, it would keep small-business and municipal deposits secure and in local communities like ours—supporting local growth. Small businesses use transaction accounts to meet payroll expenses, and municipalities use them to deposit local tax revenues and to pay operating expenses. These entities depend on full insurance coverage to keep their deposits safe and secure.

Finally, this insurance program is fully paid for by the banking industry and even supports government revenues. Deposit insurance is funded by banks—not taxpayers. Any cost of this additional coverage is reflected in the fees banks pay the FDIC to maintain its Deposit Insurance Fund.

If full FDIC coverage ends abruptly, transaction account funds could flee financial institutions at the click of a mouse, with damaging economic consequences. That’s why community bankers like me are working to get Congress’ attention that this program should be extended. We might not be in a complete economic recovery, but extending this important deposit-insurance program will help get us there.

Please contact your members of Congress today and urge them to pursue legislation that will extend this deposit account coverage for five years.  The FDIC supports this plan, but action by Congress is the only way this can be enacted.




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