Congress should remove or “dramatically” increase limits on federal deposit insurance for payroll and other non-interest bearing operating accounts, Consumer Financial Protection Bureau Director Rohit Chopra said yesterday in his capacity as a member of the FDIC’s board of directors.
In his comments, Chopra pointed to the recent failure of First National Bank of Lindsay in Oklahoma and the FDIC’s decision to advance 50% of customer balances above deposit insurance limits out of amounts expected to be realized from the failed bank’s assets. (The agency noted that the amount could increase after it completes the sale of the failed bank’s assets.) That decision stands in stark contrast to the FDIC’s decision last year to fully cover uninsured depositors after the failures of Silicon Valley Bank and Signature Bank, driven by concerns that the failures would lead to further bank runs, Chopra said.
“According to public reports, the uninsured deposits at these banks were not primarily held by local businesses,” he said. “Instead, these banks served much larger firms with very large account balances, including well-known companies in gaming, crypto, media streaming and venture capital. It was only possible to protect these uninsured depositors because the failures of these banks threatened to crash the entire banking system.”
The discrepancy between how First National Bank was handled compared to SVB shows that “big businesses putting their money in big banks enjoy free deposit insurance, and small businesses putting their money in small banks don’t,” Chopra said. “This is fundamentally unfair. The status quo gives an unfair competitive advantage to the largest banks in the country.”
“It is time for Congress to remove — or at least dramatically increase — limits on federal deposit insurance for payroll and other non-interest bearing operating accounts,” he concluded.
