Five Reasons to Oppose the Main Street Depositor Protection Act 

Introduced on October 9^th, 2025, The Main Street Depositor Protection Act (MSDPA) would be one of the most significant expansions of government into the financial sector since the passage of Dodd-Frank. The bill would raise the deposit insurance limit from the current $250,000 limit to $10 million for non-interest bearing transaction accounts at banks with under $250 billion in assets. Beyond representing bad policy, government intervention to prevent bank failures and insulate banks from market pressures have a historical track record of failure.  

The Federal Reserve issued three times as many supervisory warnings to Silicon Valley Bank (SVB) as its peers prior to its collapse yet failed to follow up. Regulators knew SVB failed internal liquidity tests, rendering the bank susceptible to a run on its deposits. SVB also failed to position any collateral to take advantage of discount window lending at the San Francisco Fed, despite facing significant liquidity problems.  

The Treasury decided to not renew the Treasury Account Guarantee (TAG) program, instituted during the Global Financial Crisis in 2012. The TAG program offered heightened insurance coverage for certain accounts in the same manner the MSDPA would provide. The acknowledgment of moral hazard risks and transient nature of the financial crisis led policymakers to abandon the program’s extension.  

1. Expanding Deposit Insurance is Unnecessary to Begin with 

It has been documented that over 99% of bank accounts in FDIC insured institutions fall under the $250,000 coverage limit. No one but a handful of businesses and wealthy individuals would benefit from the proposed expansion in coverage. While estimated to cost tens of billions, which will likely be passed on to consumers, the average American would derive no tangible benefit from the bill. Instead, they would be more susceptible to backstopping the FDIC should they find their coffers depleted as they did back in 2008. By raising the number of covered deposits substantially, bank failures would become more expensive for the FDIC to resolve.  

2. Increasing Deposit Insurance could Create Liability for Future Taxpayer Bailouts  

In 1980, Congress raised the Deposit Insurance limit to $100,000 from $40,000. That decade oversaw hundreds of thrift institutions go insolvent. Savings and Loan institutions offer interest to attract depositors and generate cash flows through lending in fixed-rate mortgages. When the Fed hiked rates during the 1980s, loans previously issued at lower rates lost value. To offset this loss, thrifts offered higher interest rates to depositors to create additional loans and stay afloat. They engaged in real-estate speculation and other risky bets to offset interest rate pressures to no avail. In 1989, Congress authorized a taxpayer bailout to resolve the FSLIC which had gone insolvent in attempting to rescue the hundreds of thrifts that failed during the decade. While the FDIC has access to a $100 billion line of credit from the Treasury, the Deposit Insurance Fund could suffer an even greater loss in the future if it is liable for an even greater share of the monetary base, potentially inviting the need for taxpayer assistance. Such a scenario should be avoided at all costs; reinforcing government guarantees will only increase the potential for future taxpayer liability.  

3. Deposit Insurance can Create Systemic Risks in the Banking Sector  

Research by the IMF has found that deposit insurance guarantees as a ratio of GDP per capita is associated with bank crises. The ratio of deposit insurance to GDP per capita should not exceed a ratio of 1-2 ideally. That ratio currently stands at about 3. During the savings and loans crisis of the 1980s, that ratio stood at around 9 when Congress raised the coverage limit to $100,000 in 1980.  

4. The MSDPA is a Textbook Example of Rent Seeking  

Rent seeking refers to a phenomenon where certain industries lobby for regulations and barriers to entry that allow for more profit than what would be normally observed under a competitive market structure at the expense of competitors. The MSDPA accomplishes this in its provision where it states that banks under $10 billion in assets are exempt from special assessments to the FDIC to fund this proposal, shifting the costs onto larger banks. Additionally, large banks with over $250 billion in assets would not receive this guarantee, meaning they receive zero benefits and burden the entire cost of the scheme. This bill will only enrich smaller banks at the expense of larger ones through the use of government coercion.  

5. Deposit Insurance Creates Moral Hazard  

Moral Hazard is a phenomenon where actors engage in risky behaviors than they otherwise would be comfortable assuming when the liabilities of their behaviors are covered or insured. Large depositors that are capable of conducting due diligence on a bank’s financial standing have a responsibility to keep depository institutions in check. Raising deposit insurance would lead to larger depositors neglecting their duty in disciplining banks and allowing their deposits to be placed at institutions they know are risky. Deposit flight from risky institutions should serve as a market signal for banks to correct their behavior. Deposit insurance mutes that signal by incentivizing banks to keep their deposits at unsound institutions.