Statement of CFPB Director Rohit Chopra, Member, FDIC Board of Directors, on Deposit Insurance Reform and the Failure of The First National Bank of Lindsay

Director Chopra submitted this statement for the record in connection with a closed meeting of the FDIC Board of Directors held on November 12, 2024.

Last month, a small community bank in Oklahoma failed due to fraudulent misconduct. Small relationship lenders tend to cater to the tailored needs of local businesses, houses of worship, farmers, schools, and families in the local community. As a result of the failure, some depositors in this rural area of Oklahoma are expected to take a loss, since their account balances exceeded federal deposit insurance limits.

In March 2023, policymakers invoked extraordinary powers to backstop the uninsured depositors of Silicon Valley Bank and Signature Bank. There was compelling evidence to suggest that if the banks had failed and uninsured depositors experienced losses, a cascade of destabilizing bank failures would follow. According to public reports, the uninsured deposits at these banks were not primarily held by local businesses. Instead, these banks served much larger firms with very large account balances, including well-known companies in gaming, crypto, media streaming, and venture capital. It was only possible to protect these uninsured depositors because the failures of these banks threatened to crash the entire banking system.

In other words, big businesses putting their money in big banks enjoy free deposit insurance, and small businesses putting their money in small banks don't. This is fundamentally unfair. The status quo gives an unfair competitive advantage to the largest banks in the country.

While big businesses might have an entire staff to manage their corporate treasury, small businesses simply need a place to accept payments from customers and make payments to suppliers and employees. Of all the things a small business should have to worry about, the failure of their bank shouldn't be one of them.

It is time for Congress to remove - or at least dramatically increase - limits on federal deposit insurance for payroll and other non-interest bearing operating accounts.