OP-ED: THE MAIN STREET DEPOSITOR PROTECTION ACT IS A POOR ATTEMPT AT DEPOSIT INSURANCE REFORM

I have the honor of serving as the at large City Councilor in Columbus,Georgia. I ran for office because I love my city, and I believe every resident deserves access to good-paying and competitive jobs. That future depends on investment in local development, and that development depends on the strength and prosperity of small businesses. 

That’s why I’m concerned about a proposal now circulating in Congress: S.2999, the Main Street Depositor Act. This bill proposes to raise federal deposit insurance for non-interest bearing transaction accounts, those chiefly used by businesses, from $250,000 to $10 million, an unprecedented and nearly 4,000 percent increase. 

 This massive increase poses a serious threat to our financial system and small businesses in Georgia and across the country writ large. Supporters argue that this leap is a necessary response to the Silicon Valley Bank crash in 2023 and the proceeding actions to guarantee all deposits, even those that exceeded the $250,000 insurance limit. 

 This sparked legitimate questions around fairness and reforming current deposit insurance limits, but the response in the form of S.2999 misses the mark. 

 I agree that deposit insurance needs to be reformed. But this requires thoughtful, data-driven consideration, not an arbitrary number that creates problems where they don’t exist. 

 The Silicon Valley Bank crash was not the result of too low a limit on deposit insurance, but rather the result of mismanagement of the bank’s investments. Raising the insurance limit is the opposite of what the takeaway of that failure should be and instead only sets the stage for a greater number of failures in the years to come. 

 History shows us what happens when deposit insurance is expanded drastically and without adequate safeguards. In the 1980s, when coverage was raised from $40,000 to $100,000, banks took on excessive risks, contributing to the failure of over 700 banks and hundreds of billions in costs to hardworking taxpayers.  

 In comparison, when deposit insurance was increased to its current level following the 2008 financial crisis, it was paired with strong oversight, such as consumer protection, stress testing, and strict liquidity requirements. This was done to prevent the very moral hazard that fueled the 1980s crisis. 

 S.2999 ignores these lessons. It proposes a dramatic increase in coverage with no corresponding regulatory protections. If risky behavior follows, as history suggests it will, it’s taxpayers who will bear the financial burden of bailing out large depositors. 

 In addition, small businesses don’t even need this level of protection. Most small businesses hold an average balance of $12,100 in their accounts on a day-to-day basis—nowhere near the drastic leap to $10 million. This increase is for big businesses, who park millions in their accounts and will now know that up to $10 million of it is guaranteed by the American people. And the added costs on banks of this guarantee will be paid for by small businesses and consumers in the form of higher banking costs and lending fees.

 Senator Warnock has long been a champion of pragmatic financial policy and recognizes the importance of maintaining the strength of our financial system. It's important that we maintain the strength of our financial system responsibly, which is why rash updates to deposit insurance are not the path forward. Any reform must protect small businesses, preserve competition, and prevent future crises. The Main Street Depositor Protection Act misses the mark on all three counts. 

 Travis Chambers serves as an at-large City Councilor in Columbus,Georgia.