Conservative organizations are warning that a push by some liberals to increase federal deposit insurance is part of a broader strategy to centralize financial power in Washington at the expense of taxpayers.
Over a dozen right-leaning groups urged lawmakers on the House Financial Services Committee to reject efforts to raise the Federal Deposit Insurance Corporation’s (FDIC) reimbursement limit for depositors in the event of a bank failure, according to a coalition letter obtained exclusively by the Daily Caller News Foundation. They also object to proposals expanding the types of accounts eligible for coverage, including certain business accounts, arguing such changes would impose an unfair burden on taxpayers.
The signatories — including leaders from the Taxpayers Protection Alliance, Heritage Action for America, and Americans for Prosperity — criticized former Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra, a close ally of Sen. Elizabeth Warren, for recent statements urging the government to expand its role in deposit insurance.
“We are broadly concerned that expanding government deposit insurance is a Trojan Horse for increased regulation on the banking sector, morphing financial institutions into government-sponsored enterprises like Fannie Mae and Freddie Mac,” the letter stated.
Currently, the FDIC insures up to $250,000 per depositor, per bank and per ownership category. For instance, if a customer have $250,000 in a checking account and another $250,000 in a trust account at the same FDIC-insured bank, the total deposit insurance coverage would be $500,000.
The Deposit Insurance Fund (DIF) — used by the FDIC to fulfill its obligations to eligible depositors when a bank fails — is funded through premiums paid by FDIC-insured institutions and interest earned on funds invested in U.S. government bonds.
Proponents of increasing the cap or broadening eligible account categories argue that such measures would bolster confidence in the banking system. The conservative groups behind the letter say these changes would incentivize risky behavior that could lead to more bank failures than there otherwise would be, invite further regulation or both.
“You bet I’d tie them together,” Democratic Massachusetts Sen. Liz Warren remarked in 2023 in response to a question about whether an increase in federal deposit insurance would be coupled with more regulations.
Neither the senator’s office nor the House Financial Services Committee responded to the Daily Caller News Foundation’s request for comment.
The groups cited the “moral hazard” associated with deposit insurance, referring to the adverse consequences of risks taken by one party that are borne by another. The letter’s signatories warned that this could “propagate a cycle of risky behavior that forces taxpayers to perennially bail out depositors.”
“We believe expanding the federal government’s role in deposit insurance is unnecessary and costly to taxpayers,” the group stated. “Raising the deposit insurance limit, including for business payment accounts, would directly contradict laudable attempts to deregulate the financial sector and protect taxpayers.”
Although taxpayers do not directly fund the DIF, the letter’s signatories argue that taxpayers are ultimately “on the hook for insuring deposits.” Some studies have also linked countries with more robust deposit insurance systems to more bank failures and financial crises.
Warren, one of the CFPB’s primary architects, has long advocated for expanding the government’s role in regulating financial institutions. She backed President Joe Biden’s crusade against credit card “junk fees,” which critics have argued would ultimately harm low-income consumers by limiting their access to credit.
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