FDIC insurance reform: time is NOW

By Alicia Wade
Executive Vice President and COO, Sovereign Bank OBA Chair

The Federal Deposit Insurance Corporation insurance system, which has long served as a cornerstone of depositor confidence and banking stability, needs reform.
With a new wave of leadership on the horizon in Washington, D.C., now is the perfect time to address the growing concerns that threaten the effectiveness of FDIC insurance in today’s complex financial environment.

Over the past decade, the U.S. banking sector has seen significant changes. The rise of digital banking, the increasing size and complexity of financial institutions and a globalized economy have all added layers of complexity to the banking environment. Depositors are increasingly utilizing technology to manage their finances, often across multiple institutions or non-bank platforms.

While the FDIC’s insurance fund remains robust, its ability to keep pace with these changes is a growing concern. The lack of consistency in the handling of bank failures in recent years has underscored the weaknesses of the current framework, specifically Silicon Valley Bank, Signature Bank and Heartland Tri-State Bank.

As stipulated by the FDIC Improvement Act of 1991, the winning bid for a failed institution must be the least costly to the Deposit Insurance Fund and less expensive than the FDIC’s cost to liquidate assets and pay insured depositors. It is our understanding this statute was followed in Lindsay in October 2024, where depositors were not fully covered for balances exceeding $250,000. This has led many bankers and consumers to question why deposits at SVB, Signature Bank, and Heartland were fully covered.

Since the bank failure in Lindsay, I have spoken with bankers across the country, regulators and the American Bankers Association. The consensus is clear: reform is needed. There is, however, a lack of agreement on the specifics of that reform.

As bankers, we stand at a crossroads. If we are to be effective, we must unite behind a single, unified message FDIC insurance reform is necessary. Without one voice, we risk failing to achieve the needed changes.

With new leadership set to take the helm in Washington, D.C., it is crucial policymakers and regulators understand the changing needs of the banking system. The leadership in the FDIC, along with the broader regulatory framework, must be proactive in addressing these challenges. The next administration must be open to a reevaluation of the FDIC insurance model, not only to safeguard the interests of depositors but also to ensure the U.S. banking system remains resilient in the face of emerging risks.

As bankers, we have a unique responsibility to advocate for this reform and to help shape the future of our industry in a way that serves the evolving needs of all stakeholders. The time for reform is now – let’s work together to ensure our banking system is prepared for tomorrow’s challenges. We must find a way to make FDIC insurance fair, equitable and sustainable to all consumers and businesses so communities will not be disproportionately impacted any further by the current system.

One way to be part of the solution is to join the ABA Deposit Insurance Working Group. The group was formed to seek feedback from banks of all sizes, business models and geographic regions to help develop policy positions and advise on comment letters for the FDIC deposit insurance organizational framework. For more information email Alison Touhey at atouhey@aba.com.