WASHINGTON, D.C. – Amid banking sector turmoil, some in Washington, D.C., advocate a “solution” that will only make matters worse:  expanding the current $250,000 deposit insurance limit by the Federal Deposit Insurance Corporation (FDIC) through its Deposit Insurance Fund (DIF).  The Center for Individual Freedom (CFIF) unequivocally opposes any Congressional or regulatory proposal to increase that $250,000 cap.  

“Any scheme to raise the FDIC’s current $250,000 deposit insurance cap fails the tests of both fairness and economic efficiency,” said CFIF President Jeffrey Mazzella.  “To put this in proper perspective, consider that Americans’ median bank account balance is approximately $5,300, according to the federal government itself.   Accordingly, since the FDIC’s insurance fund is subsidized by fees paid by banks to the federal government, everyday working Americans would be asked to provide a bailout for wealthier Americans through higher banking fees and credit costs. That’s the textbook definition of a regressive tax.  

“For additional perspective, keep in mind that when the FDIC was established in 1933, it insured deposits up to $2,500, which amounts to approximately $58,000 in 2023 dollars,” Mazzella added.  “The FDIC’s creators sought to avoid granting it a blank check that would enable excessive financial risk, and therefore strictly limited the guarantee amounts.”  

“Enlarging the $250,000 insurance limit also creates a dangerous moral hazard risk,” added Timothy Lee, CFIF’s Vice President of Legal and Public Affairs.  “If market participants anticipate that American taxpayers will ultimately cover even higher losses, that will incentivize even riskier future behavior.”  

The Government Accountability Office (GAO) itself came to that same conclusion, asserting that additional guarantees “have introduced moral hazard – encouraging market participants to expect similar emergency actions in future crises, thereby weakening their incentives to properly manage risks and also creating the perception that some firms are too big to fail.”  The GAO also found that it “could weaken incentives for newly protected, larger depositors to monitor their banks, and in turn banks may be more able to engage in riskier activities.”

“In other words, higher government guarantees would mean capitalism when wealthier market participants win, and socialism when they lose.  Many in Congress recognize the danger and unfairness of expanded deposit insurance, and CFIF urges all others in Congress and throughout the federal government to join them in opposing any and all increases to the $250,000 cap,” Lee concluded.  

CFIF is a constitutional and free-market advocacy organization with over 300,000 supporters and activists nationwide.  

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