Senate Banking Kicks Deposit-Insurance Reform Down the Road

In the wake of today’s Senate Banking deposit-insurance reform hearing, it seems certain that there will be no legislation in the near term and most likely in this Congress to increase FDIC-insurance thresholds.  Although the FDIC recommended a new approach to transaction accounts in its policy review following recent bank failures (see Client Report DEPOSITINSURANCE119), Senators on both sides of the aisle demurred.  Chairman Brown (D-OH) made it clear that any change in FDIC-coverage limits is conditioned on final, tougher bank regulations, essentially telling banks that successfully opposing new rules means keeping FDIC coverage as is.  Ranking Member Scott (R-SC) is no fan of new rules, but he also said that review of FDIC coverage should only follow significant improvements in bank supervision likely in his view to moot the need for higher deposit protection.  Sen. Scott was also emphatic that higher thresholds would need to come with higher premiums that could adversely affect bank competitiveness and credit availability.  Undeterred, Sen. Vance (R-OH) has introduced legislation to end deposit-insurance coverage limits for community banks.  Senators on both sides of the aisle focused instead on ensuring community-bank relief from pending special assessments (see FSM Report DEPOSITINSURANCE120) and, for Sen. Warren (D-MA), urging higher premiums for “TBTF” banks.