WASHINGTON–Treasury Secretary Scott Bessent suggested there may be an opportunity to significantly expand deposit insurance on certain types of accounts in order to help maintain confidence in smaller institutions.
Bessent appeared before both the House and Senate this week to deliver the annual report of the Financial Stability Oversight Council (FSOC).
At the House Financial Services Committee meeting, during the Q&A following Bessent’s prepared remarks, Rep. Frank Lucas (R-OK.) asked about the mechanics of deposit insurance and whether there is potential for extending coverage to specific types of commercial holdings. Lucas suggested expanded insurance be offered in a targeted way to non-interest bearing transaction accounts, asking whether it might strengthen financial stability in the system.
The issue was pushed to the forefront by the 2023 failures of a number of banks, including Silicon Valley Bank, where numerous companies had deposits significantly above the FDIC’s insurance limits per account. The government ended up backing all of those accounts in full.
A Prevailing Belief
As a result, Bessent said he believes there is a prevailing belief among banking customers that the largest institutions will never be permitted to lose money, which is why during periods of market stress, such as the that of 2023, “assets leave small banks. Much of that is known as the payroll account.”
Bessent said he supports targeted expansion of coverage to level the playing field, and suggested that smaller financial institutions should have noninterest bearing accounts that “have a much higher level of insurance so that they are able to retain deposits during a stress period.” Such an adjustment, Bessent suggested, would allow community banks to continue competing and lending to Main Street while alleviating “one of the biggest threats to financial stability.”
Bessent did not speak to credit unions specifically in his comments.
Stablecoins & Digital Assets
Separately, Bessent fielded several questions related to the integration of digital assets into the broader economy. Bessent responded that the GENIUS act “an important piece of legislation for bringing back into the U.S. the regulation and creation of digital assets and making the U.S. the national champions.”
He said the stablecoins that would be created, he said, “could become an important financial feature of financing the U.S. government.”
‘Paramount Concern’
Bessent told the hearing cybersecurity remains a paramount concern and that “nation-state actors and criminal groups continue to target our financial institutions and critical infrastructure.”
To mitigate these threats, FOCU is supporting “expanded information sharing, joint monitoring, and scenario-based exercises,” Bessent said. He emphasized the necessity for regulated firms to rigorously manage cyber risks tied to “third-party service providers.”
