Testimony for the Record

Thomas A. Schatz

President, Council for Citizens Against Government Waste

Before the House Committee on Financial Services

“The Future of Deposit Insurance: Exploring the Coverage, Costs, and Depositor Confidence”

November 18, 2025

Mr. Chairman and members of the committee, my name is Thomas A. Schatz, and I am the president of the Council for Citizens Against Government Waste (CCAGW).  I appreciate the opportunity to provide testimony for the record regarding the future of deposit insurance.  CCAGW is a private, nonpartisan, nonprofit organization representing more than one million members and supporters nationwide.  Founded in 1984, CCAGW is the lobbying arm of Citizens Against Government Waste (CAGW), which was established to follow up on the work of the President’s Private Sector Survey on Cost Control, also known as the Grace Commission, to eliminate waste, fraud, abuse, mismanagement, and inefficiency in government.

On March 10, 2023, the Silicon Valley Bank, Signature Bank, and Silvergate Bank failed after a bank run, which resulted in an estimated $16.1 billion of losses for the Deposit Insurance Fund and instability in the market.  Despite evidence to the contrary, including the Federal Reserve Bank’s assessment of the cause of the banks’ failure, some members of Congress determined that raising the Federal Deposit Insurance Corporation (FDIC) deposit limit would prevent similar problems in the future. 

On September 9, 2025, Senators Bill Hagerty (R-Tenn.) and Angela Alsobrooks (D-Md.) introduced S. 2999, the Main Street Depositor Protection Act, which would increase the insurance limit for non-interest-bearing accounts from $250,000 to $10,000,000.  The co-sponsors claim it would increase stability for small and mid-sized banks that help economic growth in local communities.  Sen. Alsobrooks said she wanted “small businesses in Maryland and across the country to have security in the event of another Silicon Valley Bank crash.”  Neither senator mentioned that the cause of that bank failure was unrelated to FDIC deposit limits. 

Claims that S. 2999, if passed, would increase stability for small and mid-sized banks are unfounded.  The Federal Reserve’s April 28, 2023, review of its supervision of the Silicon Valley Bank confirmed that the primary causes of the bank failure were the lack of oversight over the bank’s business model by senior management; failure to manage liquidity risk and anticipate the potential for higher interest rates; and an excessive quantity of uninsured accounts.  The report concluded that Silicon Valley Bank was an outlier in an otherwise sound and resilient banking system that has adequate liquidity and capital and suggested that increased supervision by the Federal Reserve could help prevent a similar bank failure in the future.

Instead of helping stabilize smaller-sized banks as intended, a higher insurance limit would also increase risk and moral hazard and raise the burden on taxpayers.  According to the Taxpayers Protection Alliance, raising the insurance limit to $10 million will require a one-time special assessment of approximately $42 billion to recapitalize the Deposit Insurance Fund (DIF) to its statutory minimum.  The bill’s language implements the new deposit limit immediately, while establishing a 10-year window to rebuild the DIF, which drastically increases the risk of another costly bailout.

The FDIC’s mission includes maintaining “stability and public confidence” in the U.S. financial system by insuring deposits and supervising the safety and soundness of financial institutions.  The FDIC’s role in bank failures is after the fact, while the Federal Reserve’s supervision is supposed to help prevent the FDIC and sometimes taxpayers, from having to cover the cost of uninsured deposits if a bank fails.

Academic studies and real-world examples prove the clear economic downsides of higher deposit insurance limits.  Boston College Law School Professor Patricia A. McCoy pointed out in her February 18, 2007, analysis of the moral hazards of deposit insurance that lower, not higher, insurance limits reduce moral hazard and force creditors to more closely review the business practices of the banks with which they do business.  The increase of deposit insurance from $40,000 to $100,000 in 1980 made it equal to nine times per capita GDP, and “countries with over four times per capital GDP are five times more likely to suffer bank crises than countries with coverage of under one time per capita GDP.”  In other words, lower, not higher, insurance limits reduce moral hazard and force creditors to more closely review the business practices of the banks with which they do business.  Professor McCoy published her paper one year before the 2008 banking crisis, after which the deposit insurance limit was raised to $250,000.  Increased moral hazard means that banks will become less responsible about taking risks with deposits, knowing that the government will always be there to bail them out if something goes wrong.

Senate Banking, Housing, and Urban Affairs Committee Chairman Tim Scott (R-S.C.) said at the September 10, 2025, hearing on deposit insurance reform, that any changes should “not be based on rush decisions.”  Yet Sens. Hagerty and Alsobrooks attempted to add S. 2999 (which does not have a House companion bill) as an amendment to the National Defense Authorization Act for fiscal year 2026.  The potential exposure of taxpayers to billions of dollars in bank bailouts should not be thrown into any bill without the opportunity for debate and amendments on the floor of the Senate and House.  Fortunately, the effort was rejected, and the bill should be as well should it proceed beyond any committees.

The best way to stop a bank failure is to increase oversight of bank management practices.  The FDIC is already well-suited to protect the deposits of individuals, households, and small- to mid-size businesses.  The proposal to raise the deposit insurance limit to $10,000,000 to prevent bank failures is another attempt by Congress to solve a problem that does not exist.

Again, on behalf of the members and supporters of CCAGW, I appreciate the opportunity to submit this testimony for the record and would be pleased to answer any questions the members of the committee may have.