Bessent supports increasing deposit insurance limits

Treasury Secretary Scott Bessent signaled his support for increasing deposit insurance limits Oct. 9 during the Federal Reserve Community Bank Conference in Washington, D.C..Bessent’s support comes as Republicans and Democrats support raising the current deposit insurance limit from $250,000. In July, Ranking Member of the House Financial Services Committee Maxine Waters (D-Calif.) reintroduced a bill that would order the FDIC to raise the limit for business payment accounts to an unspecified amount. Sen. Bill Hagerty (R-Tenn.) also supports raising the limit for business accounts. “I am encouraged to see emerging bipartisan support for increasing FDIC insurance limits on noninterest-bearing transaction accounts,” Bessent said. Bessent said the Treasury is prioritizing reforming the bank rating system, adopting new processes to monitor examiners’ compliance with supervisory policy; reviewing ways to independently appeal supervisory criticism; and evaluating core contract terms perceived as stifling community bank innovation. The Treasury wants to reduce capital arbitrage to nonbanks from traditional financial institutions by reducing capital requirements for large banks on mortgage and corporate loans. “We must therefore ensure parity by giving smaller banks at least the option to benefit from those reduced requirements,” Bessent said. Bessent sees regulations as having harmed community banks. He said the landmark 2010 Dodd-Frank Act failed in its mission of ending the concept of “too big to fail” banks, instead ushering in an era of some banks being too small to succeed. De novo chartering has also fallen, averaging only a half-dozen a year, compared to more than 100 annually before 2008. “The post-crisis framework has left a trail of destruction in its wake by reinforcing the larger economic dynamics that have hollowed out the American heartland while enriching the centers in coastal cities,” Bessent said. Since 2010, the United States has lost 45 percent or 3,600 community banks. Community banks’ share of bank assets has dropped to 15 percent from 23 percent, while their share of outstanding bank loans has fallen to 20 percent from 27 percent. “The previous administration pushed for rules and guidance that micromanaged corporate governance, entangled the bank regulators in climate-risk management, unduly restricted brokered deposits, precluded responsible bank innovation in crypto and other blockchain technologies, and imposed arbitrary restrictions on incentive compensation,” Bessent said. Bessent’s speech came shortly after the OCC released guidance allowing community banks to tailor their model risk management practices based on risk exposures. Regulators have also proposed rescinding revisions to the Community Reinvestment Act and a 2021 merger policy statement under the Biden administration that tightened oversight of bank mergers.