Lucas and Bessent agree: Expanding deposit insurance strengthens the banking system

Washington, DC – Today, the House Financial Services Committee held a hearing entitled, “The Annual Report of the Financial Stability Oversight Council” with Treasury Secretary Scott Bessent.

Congressman Frank D. Lucas and Secretary Bessent discussed the urgent need for a targeted expansion of deposit insurance in order to put smaller institutions on a level playing field.

Congressman Lucas’s concern for this issue comes after the federal government protected depositors at big banks in 2023, but did not afford the same privilege to small banks in Oklahoma.

SELECTED REMARKS:

Lucas: “You’ve said that the current deposit insurance framework is a vulnerability in the banking system – that there is a competitive imbalance that favors large banks and that this increases the risk of bank runs and erodes depositor confidence. Can you talk more about how a targeted expansion of deposit insurance for non-interest bearing transaction accounts would strengthen financial stability in the banking system?”

Bessent: “I think it is very important for small banks to have a non-interest bearing account that can have a much higher level of insurance so that they are able to retain deposits during a stress period. This is one of the reasons we have seen assets leave small banks. It is one of the reasons that we have seen 50% of small banks disappear.”

Lucas: “Congress should look at giving FDIC the authority to raise the coverage level for non-interest bearing transaction accounts to an appropriate amount that is data driven and puts smaller institutions on a level playing field with larger banks. How would our banking system be safer with a narrow, targeted expansion?”

Bessent: “It would permit small and community banks to continue competing, it would get credit to our Main Street, and it would stem deposit flight during a period of stress, which is one of the biggest threats to financial stability.”

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