By Jason Stverak
A recent American Banker op-ed by two former community bank CEOs labels the bipartisan Hagerty-Alsobrooks deposit insurance proposal a “gigantic gift” to credit unions. That claim is not only wrong, it’s deliberately misleading.
The Main Street Depositor Protection Act is not about favoring any institution. It is about protecting payrolls, stabilizing local economies, and correcting a structural flaw exposed during the 2023 banking crisis.
When Silicon Valley Bank collapsed, panic didn’t discriminate. Depositors fled community institutions en masse, sending more than $100 billion out of small and regional banks in a single week. Why? Not because local banks or credit unions were unsafe, but because depositors believed only the largest institutions enjoyed implicit government backing.
As Peter Rice, CEO of Hanscom Federal Credit Union, testified before the Senate Banking Committee in September: “The message to Main Street has been clear: if you’re big, you’re safe, if you’re local, you’re at risk.”
That perception is toxic and dangerous.
Protecting Paychecks, Not Padding Balance Sheets
The bankers attacking this bill would have you believe deposit insurance reform is some clever ploy by credit unions to seize market share. In reality, it is a response to a very real problem: the $250,000 insurance cap no longer reflects modern business realities.
Today, even modest small businesses routinely hold millions in operating funds for payroll, taxes, and suppliers. When those funds are uninsured, one bank failure can freeze paychecks overnight. Rice told senators about workers missing paychecks because payroll accounts were trapped in failed institutions. His conclusion was blunt: “When payroll doesn’t run, Main Street doesn’t eat.”
The Hagerty-Alsobrooks bill addresses this directly and narrowly by extending higher insurance coverage only to non-interest-bearing transaction accounts used for business operations. This is not blanket insurance. It is targeted protection for money that keeps workers paid and communities functioning.
Calling that a “gift” to credit unions ignores who actually benefits: small businesses, employees, nonprofits, and municipalities.
The Tax Argument: A Convenient Distraction
The bankers dust off the familiar complaint about credit union tax status, as if it explains everything. It doesn’t.
Credit unions are not-for-profit cooperatives. They do not exist to maximize shareholder returns. Their tax status reflects that reality, and the public benefit it produces. Credit unions return earnings to members through lower loan rates, higher savings yields, and fewer fees. Those benefits don’t just help credit union members; they force banks to compete, saving bank customers billions each year.
What the critics conveniently omit is that thousands of community banks avoid corporate income taxes altogether by operating as Subchapter S corporations. Many pay little to nothing in federal income tax. If the issue is fairness, that conversation should start there, not with a selective attack on one segment of the market.
“Mission Drift” Is Code for “Too Much Competition”
The op-ed warns that deposit insurance reform will accelerate “mission drift” and turn credit unions into “tax-exempt commercial banks.” That claim collapses under scrutiny.
Credit unions remain heavily regulated, member-owned, and mission-driven. Their growth reflects consumer choice, not regulatory failure. Membership has expanded because Americans, including military families, veterans, and working households, trust credit unions.
Banks still control over 90% of U.S. financial assets. Credit unions hold roughly 7%. Even the authors concede that business deposits make up less than 5% of credit union funding. That is not market dominance; it is marginal participation.
What the bankers are really objecting to is the possibility that credit unions might compete more effectively for business relationships if depositors are no longer forced into megabanks for insurance protection. That’s not mission drift, it’s competition.
Stadiums, Acquisitions, and Other Red Herrings
The op-ed’s handwringing over credit unions sponsoring stadiums or acquiring banks borders on the absurd. Banks plaster their names on professional sports venues across the country. When credit unions sponsor community facilities, is it suddenly evidence of overreach?
As for acquisitions: bank sales to credit unions remain rare. When they do occur, they are voluntary transactions initiated by bank owners, often because a credit union buyer preserves branches, jobs, and local service that large banks would eliminate. If community bankers are concerned about consolidation, they should look first at Wall Street, not member-owned cooperatives.
Credit Unions Are Not the Risk Here
The suggestion that credit unions are unfit to handle larger deposits is both false and ironic. Credit unions entered the 2023 turmoil with strong capital levels and emerged without failures. No federally insured credit union depositor has ever lost a penny of insured savings.
The instability that prompted emergency government intervention came from banks mismanaging interest-rate and liquidity risk, not from credit unions chasing reckless growth.
The real moral hazard today is a system that encourages depositors to flee to “too big to fail” institutions at the first sign of stress, draining community lenders of the very deposits that fund local credit.
A Main Street Solution
Deposit insurance parity is not about banks versus credit unions. It is about restoring confidence in community-based finance.
The Hagerty-Alsobrooks bill is industry-funded, targeted, and phased in over time. It protects payrolls without creating blanket guarantees. It strengthens local institutions rather than accelerating consolidation. And it ensures that credit union members receive the same protections as bank customers. Nothing more, nothing less.
Rice told Congress that this issue is about “paychecks, communities, and the strength of our nation.” He’s right.
Opposing this reform because it might also benefit credit unions is not principled, it’s protectionist. Main Street deserves better.
Jason Stverak is chief advocacy officer with the Defense Credit Union Council.
