Deposit Insurance Modernization

Background

In response to the events of 2023, the FDIC issued a report outlining possible options for reform, and other stakeholders have offered their own ideas. To date, no changes have been implemented and the deposit insurance coverage level, which can only be changed by Congress, remains unchanged since the 2008 financial crisis when coverage was temporarily expanded to $250,000, a change made permanent in 2010.

Deposit insurance coverage limits, however, are only one aspect of the deposit insurance and resolutions framework, which also includes the structure and management of the Deposit Insurance Fund, resolution of failed banks, the role of the FDIC in an emergency, and how deposit insurance fits into financial stability and the broader supervision and regulation of banks. A meaningful review of the framework must be comprehensive and consider all of these aspects.

In the spring of 2023, ABA convened a member working group to identify areas in need of modernization and recommend policy solutions. More than 300 banks representing institutions of all sizes, charters and geographical locations participated in the working group and shared their perspectives. From those discussions, it was clear that there are no simple or “right” answers, and that there are difficult tradeoffs in any of the varied policy options.

In January 2025, ABA formed an executive-level Task Force to try and develop specific policy recommendations that could bolster public confidence in the system. The Task Force unanimously approved a set of recommendations that were later adopted by the ABA Board at its July 2025 meeting.

ABA Recommendations

What follows are ABA’s recommendations for updating the deposit insurance and resolutions framework, which we believe will make the system more equitable, transparent and stronger during times of stress. Banks of all sizes should encourage policymakers to give them careful consideration. At a minimum, we want the recommendations to provide a substantive set of ideas that can help inform and drive the deposit insurance modernization discussion taking place in Washington.

Here are the Task Force’s 10 recommendations:

Emergency actions and authority

1. Congressional pre-approval for enhanced FDIC coverage to mitigate severe stress events. Congress should pre-approve authority for the FDIC to create a program similar to the transaction account guarantee program that would guarantee bank and holding company liabilities during times of severe stress. This step could help reduce the risk of contagion.
2. Improve transparency of systemic risk determinations and special assessments. Congress should require the FDIC to develop guidelines on specific considerations that warrant a systemic risk determination and the methodology it will use to identify beneficiaries for purposes of a special assessment.

Deposit insurance coverage, the Deposit Insurance Fund and assessments

3. Ensure the coverage limit and any modifications to it are empirically based and indexed to inflation. Any change in coverage should be data driven, with significant input from the banking industry and other stakeholders. The FDIC should expand its efforts to collect relevant data and info that can help inform the nation’s banks and policymakers on the tradeoffs between specific coverage limit options. Once a limit is established, it should be indexed to inflation. 
4. Maintain a Deposit Insurance Fund that is stable and properly calibrated to risk. The FDIC should continue to use a risk-based approach when setting assessments and ensure its methodology is based on modern risk principles.
5. Make deposit insurance assessments tax-deductible. Congress should reverse the Tax Cuts and Jobs Act of 2017 sliding-scale method for determining the deductibility of FDIC assessments.
6. Evaluate the costs and benefits of offering additional insurance for purchase by individual banks. Allowing banks to purchase excess deposit insurance would likely result in lower costs for banks relative to excess deposit insurance products provided by the private sector. The FDIC should evaluate the potential costs and benefits of such an approach.

Bank resolutions

7. Broaden the scope of considerations applied in determination of “least cost” to include potential contagion or other unwanted impacts. Congress should allow the FDIC to consider the cost of resolutions strategy on a wider range of banks or the industry not just the deposit insurance fund
8. Enhance community bank participation in resolutions to preserve essential banking services. Congress should allow the FDIC to consider the cost of resolutions strategy on communities and provide the FDIC with the power to balance the least cost test for community bank failures with options to mitigate negative impacts, such as loss of essential banking services, on the relevant communities.
9. Open resolution-associated asset auctions to a greater diversity of investors. This change would enhance fairness in the failed bank bidder qualification process, increasing the spectrum of institutions permitted to bid on failed institution franchises and assets.
10. Publicly release resolution approaches considered in a given case and their respective estimated costs. The FDIC should release the resolution approaches considered and the estimated costs of each failure to improve the transparency and accountability associated with failed institution resolutions.

Next Steps

This is the right time to make these reforms. America’s banks are well capitalized, highly liquid, and well positioned to meet the needs of their customers and communities across the country. We want the deposit insurance system modernized before the next moment of stress, so the FDIC has the tools it needs to mitigate and manage the situation.

The last major changes to deposit insurance took place during a crisis. By acting now, we can work with all stakeholders to deliver more thoughtful solutions and build public confidence in our banking system, a goal we all share.

These issues are challenging, and we recognize that individual banks may have different views on how best to modernize deposit insurance. We remain open to constructive ideas, and welcome others to offer their own proposals.

Still, we believe these recommendations constitute a pragmatic, measured approach toward ensuring the continued resilience, fairness and transparency of the nation’s deposit insurance framework. We urge all banks and other stakeholders to join ABA in advancing these changes.