FDIC Chair Considers Deposit Insurance Reforms

FDIC Chair Martin J. Gruenberg considered US and European experiences with deposit insurance and potential reforms to strengthen financial stability.

In remarks at the Center for Financial Studies at Goethe University Frankfurt, Mr. Gruenberg highlighted the risks posed by heavy reliance on uninsured deposits, which, he said, contributed to the destabilizing bank runs in 2023. He described the FDIC's ongoing review of deposit insurance coverage levels and—noting the trade-offs—identified three potential reforms being considered to address financial stability concerns: (i) raising the standard coverage limit, (ii) providing unlimited coverage and (iii) implementing targeted increased coverage for specific account types. Mr. Gruenberg indicated that the FDIC is particularly interested in higher coverage for business accounts, which could mitigate the risk of bank runs triggered by operational funding needs. He recognized and cautioned against broad expansions that could introduce moral hazard. He reported that the FDIC and other regulatory agencies were developing a rule that would require large regional banks to issue long-term debt.

Mr. Gruenberg acknowledged regulatory efforts in the European Union to strengthen their deposit insurance framework and provided insights from the US experience with the FDIC's centralized system. While distinguishing the two systems, he supported European efforts, post the 2008 Global Financial Crisis, toward establishing a framework for ensuring financial stability, which include three integrally related pillars: (i) a single system for supervision, (ii) a single system for resolution and (iii) a single system for deposit insurance. He said "I ... hope that the European Banking Union's aspirational third pillar may become a reality in the years ahead."