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FDIC Proposes Deposit Protection Overhaul

In the wake of major bank collapses, businesses could get access to higher deposit protection limits under new rules proposed by the FDIC

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  • Written by  Banking Exchange staff
FDIC Proposes Deposit Protection Overhaul

Businesses’ bank accounts could receive enhanced deposit protection under plans put forward by the Federal Deposit Insurance Corporation (FDIC).

The FDIC this week published a detailed report into options for changes to the rules around the deposit insurance system in the wake of the collapses of Silicon Valley Bank, Signature Bank, and most recently First Republic.

FDIC chairman Martin Gruenberg said in a statement: “Business payment accounts pose greater financial stability concerns than other accounts given that the inability to access these accounts can result in broader economic effects.

“In addition, business payment accounts may pose a lower risk of moral hazard because those account holders are less likely to view their deposits using a risk-return trade-off than a depositor using the account for savings and investment purposes.”

He added that the report should be “a useful starting point for consideration of the issues surrounding deposit insurance and allow for an informed public discussion”.

The report put forward three options for reforming the FDIC: maintaining current coverage levels, extending unlimited deposit insurance coverage to all depositors, or the “targeted coverage option”.

This latter option, the FDIC’s statement said, would mean different deposit protection limits for different types of account, with business accounts receiving “significantly higher coverage than other accounts”.

Rob Nichols, president and CEO of the American Bankers Association, said the trade group agreed with Gruenberg’s assessment, and urged policymakers to “consider input from the nation’s banks that pay for the current system through their assessments” before acting on the report.

“As the report makes clear, every potential change to the existing system has costs, benefits and operational challenges, including the FDIC’s ‘targeted coverage’ option, that must be weighed very carefully,” Nichols said.

He added that the ABA would assess the three options based on whether they would “enhance the ability of banks of all sizes to compete and succeed in serving their customers and communities”.

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