Is FDIC Insurance About to Get a Bump?

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Christmas time seems to start earlier and earlier each year. I had run to Lowes a few weeks ago, and I thought it was strange to see gigantic skeleton statues for Halloween on the same isle as the abominable snow man Christmas decorations. Anyway, it probably won’t be long until Christmas movies start playing. Actually, I’ll bet they already are on the Hallmark channel. Or does the Hallmark Channel just play Christmas movies year-round? I digress. It’s a Wonderful Life will make its annual rounds on a host of cable channels in the very near future. If you’ve seen the movie, you can understand what “run on the bank” is. This is when all the depositors in a bank decide to take their money out all at once. This is what happened to George Bailey, but thanks to some creativity on his part, he was able to give depositors enough renewed confidence to stop the run and save the bank. Prior to 1933, bank runs were common. This is one of the reasons the FDIC was founded – to create stability in the banking system. One of the largest changes to the FDIC is currently under consideration in the form of a bi-partisan bill from Senators Bill Hagerty of TN and Angela Alsobrooks of Maryland. This bill proposes to raise the FDIC insured limit to $10mm for non-interest-bearing bank accounts for banks under $10b in assets. This proposal is being cheered by some and jeered by others. In today’s episode I’ll remind you of how banks work, so you can understand why FDIC insurance is even needed. Then I’ll share the pros and cons of this bill and let you make your own decision on whether it is a net positive or net negative for you and your business. Let’s start with how banks work. Banks borrow from the public in the form of deposits. You want a way to store your money safely and to move your money. Banks do that for you. So, your checking account, in some ways, is really a loan to your bank. The bank takes your money, and all of the other money on deposit with it and loans that out to individuals and businesses. Banks have a cost on these deposit accounts. There is the cost for personnel and branches to service these deposits. But there is also sometimes interest cost in the form of interest-bearing accounts and CDs. This is the “cost of goods sold” for a bank. And what goods are banks selling? Money. When the banks lends your money out to others, it is charging for that money. The difference between the cost of money for banks and the revenue generated from loaning that money is called net interest margin. That is one of the primary income streams for banks. Now all this works, so long as the bank makes good loans and so long as its deposit base is stable. But if everyone came to take their money at one time, banks would have to call loans due in order to have enough money to pay everyone back. This is what happened with the failure of Silicon Valley Bank in March of 2023. A series of events led its depositors to lose confidence all at once and take their money out of the bank. If you want to listen to the episode we did that detailed some reasons why the bank failed you can listen to our episode titled: Banking failure 2.0 and Understanding FDIC Insurance on May 2, 2023, or the “Understanding Recent Bank Failures” on March 21st, 2023. Now if you don’t keep over $250,000 in deposits, you really aren’t worried about a bank failing. But those who had over the amount in Silicon Valley Bank, particularly businesses, cared greatly on whether that bank failed or not. So, the Main Street Depositor Protection Act would only apply to banks $10bb in size or less. According to the St. Louis Fed, this would cover 4,300 banks in the country, easily covering all community banks. Proponents of the bill say this would positively impact community banks by putting them on the same footing as regional and national banks who are sometimes deemed “too big to fail.” Proponents also say that this would benefit small businesses who often carry more than $250,000 in non-interest-bearing accounts, giving them confidence to do business with local banks without fear of failure. This is one of the reasons the authors called the bill the Main Street Depositor Protection Act. The Independent Community Bankers Association, which represents medium and small size banks all around the country, endorsed the bill as promoting “balanced deposit insurance coverage across the banking industry.” But there are some who think this is a bad move. There is a concern that banks may take greater risks is the bulk of their client deposits are insured. This bill would provide a more stable funding source for banks across the board, rather than making banks compete for uninsured deposits by being more stable than another bank. Some are also concerned that the additional cost for big banks to subsidize the deposit insurance fund will lead to higher costs for consumers. Lastly there are concerns over additional government expansion into the private sector. So…what do you think? Although you may not have over $250,000 in deposit in one bank, these kinds of bills affect the banking industry and will, in turn, affect you. I think we are seeing the continued bifurcation of banking into community banks and national banks. I think you will see them treated more and more differently in the future. I also don’t think the bill will make it through the Senate, as is. There will be pushback from strong interest groups, so I think there will either be amendments or that it will get voted down on the floor of the Senate. So, if a final bill emerges into law, changing the composition of FDIC insurance, I think it will look a little different than the one introduced in early October. I mentioned earlier that banks sell money. This is true, but at Foundation Bank and MBC, we seek to sell more than money. We seek to sell financial solutions wrapped in financial relationships. We don’t want to just provide a mortgage, we want to provide the information, perspective, and handholding to help you do your mortgage well. We don’t just want to provide a small business checking account. We want to be a responsive and knowledgeable resource to give you the tools you need to manage your small business’s money well. Start your next financial conversation with us today at foundationbank.org. It really will be worth your time. We hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. Until our next episode, God bless you.

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/McKenzie Banking Company on November 04, 2025. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. Foundation Bank/MBC is an Equal Housing Lender, Member FDIC.