🔒CT community bankers back $10M FDIC insurance limit proposal to compete with larger rivals

In March 2023, three U.S. banks failed within four days of each other. Two of them — California-based Silicon Valley Bank (SVB), with $209 billion in assets, and New York-based Signature Bank, with $110.4 billion in assets — represented the third- and fourth-largest bank failures in U.S. history. Although about 89% of SVB’s $172 billion in deposits and 90% of Signature’s $89 billion exceeded the Federal Deposit Insurance Corp.’s $250,000 coverage limit, regulators announced that all depositors at both banks would be made whole — meaning even those with balances above the cap would not lose a dime. That decision reignited debate over the FDIC’s insurance limits and has spurred a bipartisan push in Congress to raise the cap to as much as $10 million for certain business and transactional accounts. The effort has drawn support from both Sen. Elizabeth Warren (D-Mass.) and Trump Administration Treasury Secretary Scott Bessent. Large national lenders have objected, saying the change would increase their assessment costs, but some community bank executives in Connecticut argue that higher coverage could help level the playing field. They note that during periods of financial stress, corporate, municipal and business customers often shift deposits to the largest institutions, viewing them as safer and “too big to fail.” One local banker said deposits at all banks, large and small, should be fully insured.

Depositor protection

Increasing the deposit insurance limit is included in the “Main Street Depositor Protection Act,” sponsored by Sens. Bill Hagerty (R-Tenn.) and Angela Alsobrooks (D-Md.), who are both members of the Senate Banking Committee. Under the bill, the $10 million cap would apply only to noninterest-bearing transaction accounts at banks and credit unions, which generally are used by businesses to hold payroll and money from online transactions. (Credit union depositors are insured by the National Credit Union Administration, not the FDIC.) In announcing the bill on Nov. 3, Hagerty said the measure has support from groups including the Independent Community Bankers of America, the Mid-Size Bank Coalition of America and America’s Credit Unions, calling it a reform that would bolster regional and community banks’ roles in a stronger, more stable financial system. The nation’s largest money-center banks, however, have raised opposition to the bill, according to published reports, arguing they already contributed more than $9 billion to rebuild the FDIC insurance fund in late 2023, and that raising coverage limits would add billions in new costs. The FDIC fund, in fact, is funded primarily through quarterly assessments on banks based on their total assets. Stamford-based Webster Bank, for example, is the largest bank headquartered in Connecticut, with $83.2 billion in assets. In 2024, it paid $10.3 million to the FDIC, according to its annual report. In contrast, New Canaan-based Bankwell Bank has $3.2 billion in assets and paid $3.35 million to the FDIC in 2024, according to its annual report.

Level playing field

The nation’s larger banks may object to the bill for another reason: greater competition. Stephen Lewis, president and CEO of Thomaston Savings Bank, said the $10 million cap would allow smaller banks to compete with large institutions for big commercial customers. Thomaston Savings has assets of $1.9 billion and deposits of $1.6 billion. “I think it kind of levels out the playing field a little bit for those larger commercial customers that may be more concerned about leaving that much money in a community or a regional bank,” Lewis said. That’s because, since the 2008 financial crisis, the nation’s largest banks have been considered too big to fail, meaning big businesses do not have to worry if a Bank of America or JPMorgan Chase runs into financial trouble. “The federal government would never, ever let them fail,” Lewis said. “They would come in and … cover everyone.” Following the wave of bank failures in 2023, some of Thomaston Savings’ business customers considered moving their money to larger banks, concerned they had too much with one institution — “a concentration of risk,” he said.

David Rotatori, president and CEO of Naugatuck-based Ion Bank, which has $2.8 billion in assets and $2.3 billion in deposits, said some big business customers expressed the same concerns to him in the wake of the bank failures. “During that crisis, there was a customer calling and potentially pulling money out, and we did have several that ultimately did,” Rotatori said. Expanding the FDIC limit to $10 million for some business accounts would make that less of an issue, Lewis said. “It seems like a pretty reasonable approach to help community and regional banks kind of compete with business customers against the national banks,” he said.

Spreading risk

Midsize and small banks, though, have had a way to protect their business customers’ deposits even without help from the FDIC. Banks nationwide, including Ion and Thomaston Savings, use private firms that provide a way to safeguard deposits that exceed the existing $250,000 FDIC limit. Several companies — including IntraFi, R&T Deposit Solutions and ModernFi — offer services that automatically divide large deposits among a network of FDIC-insured banks, ensuring that each portion remains fully protected. For example, if a business deposits $1 million, the service allocates $750,000 of that amount to three other participating banks, ensuring each receives no more than the FDIC’s $250,000 insurance limit. In turn, the original bank reciprocates by accepting similar deposits from other institutions in the network. “Essentially, we’ve spread the risk and increased the insurance for our customers,” Rotatori said. The downside, he noted, is that banks pay a fee for the service and typically pass that cost along to customers — creating “a challenge for smaller businesses.”

Insure all deposits

Rotatori said he supports not only the $10 million cap but also full FDIC insurance for all deposits. “If you break it down, 85% to 90% of all FDIC deposits are already insured because the biggest banks own such a large piece of it anyway” and are considered too big to fail, he said. While all deposits at big banks are technically not insured by the FDIC, the fact that SVB and Signature Bank depositors were made whole beyond the $250,000 limit proves his point, Rotatori said. “So if they’re not going to let them fail, anybody bigger than them is not going to be able to fail, and that’s 90% of the deposits out there,” he said. That final 10%, he added, represent deposits in smaller community banks, which puts them “at a big disadvantage.” The small banks “generally are not going to cost the FDIC as much as the bigger banks will cost,” he said, adding that not including the small banks ultimately hurts them and their customers. “We’re not trying to save the banks,” Rotatori said. “We’re trying to save the depositors.”

Thomas Mongellow, president and CEO of the Connecticut Bankers Association (CBA), is a lot more cautious about raising the FDIC cap. The CBA represents 40 member institutions of all sizes in the state, and has not yet taken an official position on Hagerty’s bill. Mongellow said the industry would like the FDIC cap indexed to inflation and for Congress to make FDIC assessment payments tax-deductible for banks. The CBA’s preference, he added, would be for the FDIC to take a more holistic approach by creating a program that deals with “a severe stress event, regardless of tnauhe size of the bank.” “I think there’s going to be a lot more discussion that happens on this,” Mongellow said, adding that the CBA will wait for more definitive solutions before deciding on whether to support them.