WASHINGTON — Several members of the House Financial Services Committee introduced various proposals to reform the U.S. deposit insurance framework, including deposit protections for credit unions.
Among the proposals is a plan aimed at expanding federal deposit insurance coverage for community financial institutions has been introduced in Congress, with supporters arguing it would strengthen confidence in smaller banks and credit unions and help them compete with larger institutions.
“We are grateful for Congressman Andy Barr’s leadership in introducing a bill that would create a permanent Transaction Account Guarantee program that includes credit unions,” Scott Simpson, president and CEO of America’s Credit Unions, said in a statement. “Deposit protection gives people the peace of mind that boosts consumer confidence, helps keep the economy stable, and ensures institutions can effectively serve their members and communities even when things get tough. We appreciate that credit unions are included in this legislation and recognized as important parts of this framework. We look forward to working with Congress to move this important policy forward.”
Meanwhile, the proposed Main Street Depositor Protection Act would raise or modify existing deposit insurance limits, particularly for certain business and municipal accounts, according to a summary of the bill released by its sponsors.
Lawmakers backing the measure said the current $250,000 cap under the Federal Deposit Insurance Corporation and the National Credit Union Administration no longer reflects the needs of many small businesses, municipalities and nonprofit organizations that often maintain higher balances to meet payroll and operational expenses.
‘Gives Us Pause’
“Strengthening depositor confidence is critical to maintaining a stable and competitive financial system. We appreciate Congressman (Frank) Lucas’ focus on modernizing deposit insurance for today’s economy. However, there are some aspects of the ‘Main Street Depositor Protection Act’ that give us pause,” Sullivan said in a statement. “As Congress considers updates to the deposit insurance framework, it is essential to fully include and provide parity for credit unions while recognizing their distinct structure and mission. Policymakers must ensure legislation includes autonomy and oversight by the NCUA as credit unions’ independent regulator, just as the FDIC provides oversight of banks.
“It’s critical we work with lawmakers to ensure any final legislation strengthens financial stability and ensures that the credit union share insurance fund will be overseen by the NCUA.
Stopping ‘Outflows’
In a statement, bill sponsors said the legislation is intended to “protect Main Street depositors” and prevent the outflow of uninsured deposits from community-based institutions to larger banks perceived as “too big to fail.”
As the CU Daily has previously reported, the proposal follows concerns raised after a series of bank failures in 2023, when regulators took extraordinary steps to guarantee uninsured deposits at certain institutions. Policymakers and industry groups have since debated whether permanent changes to deposit insurance are needed to prevent similar disruptions.
According to a bill summary provided by congressional offices, the legislation would expand coverage for specific types of accounts frequently used by small businesses and local governments, while seeking to limit additional risk to the federal deposit insurance funds.
What Supporters, Critics Say
Supporters of the measure include community banking and credit union advocates, who have argued in public statements and policy papers that disparities in deposit insurance treatment can place smaller institutions at a competitive disadvantage.
Critics, however, have warned that expanding deposit insurance could increase costs for financial institutions through higher insurance premiums and potentially expose the deposit insurance system to greater risk, according to analyses from policy groups and prior congressional testimony.
The bill has been referred to the House Financial Services Committee and the Senate Banking Committee, where it is expected to be debated alongside other proposals addressing financial stability and regulatory reform.
No timeline has been set for committee consideration.
