Deposit Insurance Reform: Community Bankers' Goals

The bank failures of 2023 renewed national attention on how federal deposit insurance builds confidence in the banking system. Those events reminded bankers and policymakers that trust matters most when uncertainty rises. For community banks, the message was clear: The system works, but it needs to keep pace with modern-day risks like social media-fueled speculation and real-time deposit runs to protect the customers who depend on it every day.

As lawmakers review possible updates to the deposit insurance framework, ICBA members are united by the shared goals of protecting depositors and keeping community banks at the center of reform efforts. 

Setting the stage for reform

Deposit insurance has been a key policy focus for ICBA this year. ICBA’s Deposit Insurance Working Group (a subcommittee of the Safety and Soundness Committee) has been reviewing reform proposals from the FDIC, policymakers and other stakeholders to gauge their effects on community banks. The group’s goal is to make recommendations for reform that will promote depositor confidence in community banks, avoid reinforcing too-big-to-fail banks and keep the system fair and cost-effective for smaller institutions.

Members of the working group are evaluating options for expanding coverage, considering how proposed changes could affect assessments and reviewing how potential changes could influence depositor behavior during future periods of market stress. Their goal is to inform advocacy with practical input that reflects the realities of community banking and ultimately helps guide smart, balanced reform.

Turning principles into policy

In October, ICBA released principles for deposit insurance reform based on the group’s work. The principles contemplate a range of reform proposals now under consideration, encouraging lawmakers to:

• Promote depositor confidence in community banks to prevent deposit flight to too-big-to-fail banks.
• Curb the implicit too-big-to-fail government guarantee.
• Control the cost of deposit insurance for community banks.
• Provide increased coverage for uninsured deposits.
• Expand the FDIC’s ability to promptly protect community banks and their customers during crises.
• Ensure the bank-funded deposit insurance fund (DIF) is not used to bail out or protect nonbanks.

ICBA’s principles are designed to ensure deposit insurance reforms are built on lessons learned from prior events. 

For example, during the large bank failures of 2023, community bankers learned that small-business customers were, in some cases, advised to transfer deposits to too-big-to-fail banks to seek perceived safety under these institutions’ implicit government guarantee. As such, the principles suggest lawmakers protect, at the very least, transaction accounts for small businesses, municipalities and nonprofit organizations to ensure these depositors are not incentivized to leave their preferred community bank due to deposit insurance limits.

Additionally, community bankers learned during the Great Recession that the FDIC may levy drastic procyclical assessments. To avoid these outcomes, the principles suggest lawmakers provide consistent and predictable assessments for community banks, especially during times of non-stress, to ensure the DIF is healthy. 

The principles also suggest lawmakers limit the FDIC’s ability to increase deposit insurance premiums for community banks, either through base increases or special assessments. 

Community bankers have also learned that emergency measures, like the 2008 Transaction Account Guarantee program, work best when the FDIC can quickly implement these programs without first obtaining consent from Congress. As such, the principles suggest lawmakers provide the FDIC unencumbered authority to establish deposit insurance programs to provide stability during times of crisis, and to promote changes to the least-cost resolution framework to allow the FDIC to select bids that protect all depositors, including uninsured depositors.

Legislative proposals to reform deposit insurance

Recent developments in Congress around these priorities include the Main Street Depositor Protection Act (S. 2999), a bipartisan bill introduced by Sens. Bill Hagerty (R-Tenn.) and Angela Alsobrooks (D-Md.) to create a permanent framework for deposit insurance reform and raise coverage to $10 million for transaction accounts. The proposal protects small business payroll accounts, which often exceed the current $250,000 limit. It also shields community banks with assets under $10 billion from special assessments or higher base deposit insurance premiums during a 10-year transition period.

The bill builds on the FDIC’s earlier recommendations, which outlined several reform options but lent preference to targeted coverage reforms. It also establishes a solid starting point for broader discussions on how to modernize deposit insurance while keeping costs manageable for community banks.

The House Financial Services Committee passed a separate bill (H.R. 3234), led by House majority whip Tom Emmer (R-Minn.) and Rep. Joyce Beatty (D-Ohio), that would raise the percentage threshold of reciprocal deposits that may be held by a bank without being considered brokered. H.R. 3234 would allow community banks greater reliance on reciprocal deposits to achieve higher aggregate levels of deposit insurance coverage. 

The committee also passed the Community Bank Deposit Access Act of 2025 (H.R. 5317), chairman French Hill’s (R-Ark.) bill to allow custodial deposits to be held by community banks without being considered brokered deposits, provided the custodial deposits do not exceed 20% of the banks’ total liabilities.

And earlier this year, committee ranking member Maxine Waters (D-Calif.) reintroduced a bill, H.R. 4551, to update the deposit insurance framework for business payment accounts and enhance emergency tools for the FDIC to use in future crises. 

Looking at long-term stability

Deposit insurance reforms will require thoughtful collaboration across the industry. While approaches may differ, community banks need a clear voice in the process. 

As these discussions move forward, ICBA will work to ensure policymakers keep community banks’ unique role front and center. 

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