The Senate Republican and Democrat introduced the Main Street Depositor Protection Act, which would provide $10 million in additional deposit insurance coverage for noninterest-bearing transaction accounts at eligible banks and credit unions. The legislation serves to enhance financial stability.
“This essential reform strengthens regional and community banks’ central roles in the financial system of the future. A stronger and safer banking system will benefit all Americans,” Hagerty said in a statement.
The senators introduced the legislation to prevent a banking crisis such as when Silicon Valley Bank collapsed after a bank run. The lawmakers believe that by providing additional insurance for accounts primarily used by businesses it could provide additional assurance to corporations, preventing them for going to megabanks that have a perceived government backstop in the event of a financial crisis.
Alsobrooks said in a statement:
Permanently extending deposit insurance to payroll accounts will protect small businesses, community banks, credit unions, and the people they serve. I am proud to partner with Senator Hagerty on this commonsense bipartisan legislation to build an economy Marylanders, small business owners, and all Americans can trust. I look forward to continuing to build broad bipartisan support to get this done. I want small businesses in Maryland and across the country to have security in the event of another Silicon Valley Bank crash. All small businesses that bank with smaller lenders deserve to have confidence their deposits are safe.
The legislation is backed by:
- Independent Community Bankers of America
- Mid-Size Bank Coalition of America
- America’s Credit Unions
- Tennessee Bankers Association
- Tennessee Credit Union League
The issue of protecting America’s medium-sized and community banks has backing from Republicans on Capitol Hill as well as in the Trump administration.
Hagerty and Treasury Secretary Scott Bessent in late October wrote in a letter to the Wall Street Journal:
Amid the panic that ensued in the spring 2023, billions of dollars of deposits fled from regional and community banks to the largest banks. Regulators responded by invoking emergency powers, further entrenching the bailout culture that the Dodd-Frank Act of 2010 was intended to end. What explained the flight? A competitive imbalance: The biggest banks benefit from a perceived government guarantee that smaller institutions lack.
…
Empowering them to succeed is essential to driving economic growth in America’s heartland. In coastal cities, global systemically important banks may sponsor big-league stadiums. But in the rural towns of South Carolina and Tennessee, it is the community banks that sponsor the Little League, lend to Main Street businesses and make the American dream possible.
They added, “This would put community banks on a more even playing field with their larger competitors and provide small businesses more certainty to maintain their payroll and other operating accounts with community banks in times of stress. By bolstering depositor confidence and reducing the risk of runs, the policy would prevent costly failures before they happen.”
Vice President JD Vance has spoken about the need to protect America’s local banks during his time in the Senate. During a Senate Banking Committee hearing June 2023, he raised concerns about a loophole that would allow for large banks to acquire smaller banks if the smaller banks were failing.
The burden of our financial system falls heaviest on the small and midsize banks. The amendment that we proposed would mean that if the FDIC takes a bank into receivership, we only allow a massive bank to buy the failed bank’s assets unless there’s no other alternative and there’s no other buyer on the table.
One of the things that we learned from the SVB [Silicon Valley Bank] crisis and much of the fallout is that the big banks have a lower cost of capital. They’re able to absorb these things. But if that leads to concentration and if we don’t do anything to stop it, we’re going to wake up in a country that has three or four massive banks and no small and regional banks for our financial system. [Emphasis added]
That’s a disaster for our country. It’s a disaster for our small businesses and our consumers. We should do more to try to preserve the regional banking system of our country. I think it’s good for our people, it’s good for our country, and we don’t want to be like Europe, where they just have two or three massive national banks and no other alternatives for their consumers.
WATCH — J.D. Vance: “We’re Going to Wake Up in a Country” that Only Has “Massive National Banks”:
Video Source: Senator JD Vance / YouTube
Jim Nussle, president and CEO of America’s Credit Unions, said in a statement backing Hagerty and Alsobrooks’s legislation:
America’s Credit Unions applauds Senators Hagerty and Alsobrooks for their bipartisan work on the Main Street Depositor Protection Act. This bill would ensure small businesses have faith in their local financial institutions, such as credit unions, so that they can work with a trusted community credit union for their financial needs instead of a Wall Street mega bank. This commonsense reform will help credit unions continue to meet their mission of helping Main Street America.
The legislation is not without its conservative detractors.
Grover Norquist, the president of Americans for Tax Reform, accused the bill’s advocates of transferring risk to taxpayers.
“Abandoning market forces and sticking taxpayers with the bill will make bank failures more likely. Higher insurance premiums mean less lending, higher borrowing costs and government-induced deposit outflows to pet banks. Lawmakers should say no to expanding deposit insurance,” Norquist wrote.
“Instead, let’s encourage banks to compete on product and services, not regulatory handouts. Specifically, smaller banks have been hamstrung since 2008 by all manner of price controls on debit, credit and other services that have limited their ability to compete,” John Tamny, the president of the Parkview Institute and editor of RealClearMarkets, wrote.
He added, “In short, remove regulations rather than impose them. For all banks. And let the competition begin. As J.P. Morgan Chase’s growth under Dimon attests, there’s no reason that small and medium-sized can’t grow large. Just the same, there are no shortcuts to success.”
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