the bank failures of 2023 renewed national attention on how federal deposit insurance builds confidence in the banking system. Those events reminded bankers and policymakers that trust matters most when uncertainty rises. For community banks, the message was clear: The system works, but it needs to keep pace with modern-day risks, such as social media-fueled speculation and real-time deposit runs, to protect the customers who depend on it every day. As lawmakers review possible updates to the deposit insurance framework, ICBA members are united by the shared goals of protecting depositors and keeping community banks at the center of reform efforts. SETTING THE STAGE FOR REFORM Deposit insurance has been a key policy focus for ICBA this year. ICBA’s Deposit Insurance Working Group (a subcommittee of the Safety and Soundness Committee) has been reviewing reform proposals from the FDIC, policymakers and other stakeholders to gauge their effects on community banks. The group’s goal is to make recommendations for reform that will promote depositor confidence in community banks, avoid reinforcing too-big-to-fail banks and keep the system fair and cost-effective for smaller institutions. Members of the working group are evaluating options for expanding coverage, considering how proposed changes could affect assessments and reviewing how potential changes could influence depositor behavior during future periods of market stress. Their goal is to inform advocacy with practical input that reflects the realities of community banking and ultimately helps guide smart, balanced reform. TURNING PRINCIPLES INTO POLICY In October, ICBA released principles for deposit insurance reform based on the group’s work. The principles contemplate a range of reform proposals now under consideration, encouraging lawmakers to: • Promote depositor confidence in community banks to prevent deposit flight to too-big-to-fail banks. • Curb the implicit too-big-to-fail government guarantee. • Control the cost of deposit insurance for community banks. • Provide increased coverage for uninsured deposits. • Expand the FDIC’s ability to promptly protect community banks and their customers during crises. • Ensure the bank-funded deposit insurance fund (DIF) is not used to bail out or protect nonbanks. ICBA’s principles are designed to ensure deposit insurance reforms are built on lessons learned from prior events. For example, during the large bank failures of 2023, community bankers learned that small-business customers were, in some cases, advised to transfer deposits to too-big-to-fail banks to seek perceived safety under these institutions’ implicit government guarantee. As such, the principles suggest lawmakers protect, at the very least, transaction accounts for small businesses, municipalities and nonprofit organizations to ensure these depositors are not incentivized to leave their preferred community bank due to deposit insurance limits. Additionally, community bankers learned during the Great Recession that the FDIC may levy drastic procyclical assessments. To avoid these outcomes, the principles suggest lawmakers provide consistent and predictable assessments for community banks, especially during times of non-stress, to ensure the DIF is healthy. The principles also suggest lawmakers limit the FDIC’s ability to increase deposit insurance premiums for community banks, either through base increases or special assessments. FINDING COMMON GROUND on Deposit Insurance Reform Community Bankers Share Common Goals for Protecting Depositors By JENNA BURKE, Executive Vice President and General Counsel for Government Relations and Public Policy, ICBA 16 Community Banker
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