A newly proposed bill in Congress would modernize the deposit insurance framework for business payment accounts to better support America’s small businesses.
U.S. Rep. Maxine Waters (D-CA), the top Democrat on the U.S. House Financial Services Committee, recently sponsored the Employee Paycheck and Small Business Protection Act, H.R. 10542, which also would enhance emergency tools for the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) to use in future crises.
“The simple truth is small businesses need reliable banking services, and they should be able to work with local financial institutions in their community,” Waters said on Dec. 20. “My bill, the Employee Paycheck and Small Business Protection Act, will expand deposit insurance coverage for business accounts, so entrepreneurs are protected if their depository institution fails.”
Specifically, H.R. 10542 would authorize the FDIC and the NCUA to collect data, conduct analysis, and issue a proposed rule within 18 months of the proposed bill’s enactment to increase the deposit and share insurance threshold for business payment accounts from $250,000 to a higher dollar threshold.
The agencies would jointly determine this higher threshold, along with which type of business transaction accounts would be covered that would promote safety and soundness, financial stability, depository institution competition, and the ability for businesses to make timely payments, including payroll and vendor payments, according to a bill summary provided by Waters’ staff.
Additionally, the bill would require the chairs of both the FDIC and the NCUA to testify on their findings and proposed rule. The agencies then would be required to implement the expanded insurance coverage within 30 months. If they miss that deadline, then they would be required to testify before Congress again.
The General Accounting Office also would be required to do a study and issue any administrative or legislative recommendations, the summary says.
The bill also would improve emergency tools for regulators, allowing the FDIC and the NCUA to establish a temporary Transaction Account Guarantee (TAG) program for six months, which could be extended for a total of nine months, provided that it is authorized by the Secretary of the Treasury, with the support of at least two-thirds of the FDIC and Federal Reserve Boards. These TAG programs would temporarily guarantee all deposits in transaction accounts in a future crisis, and any extension beyond nine months would require congressional approval, states the summary.
The proposed H.R. 10542 follows the sudden failure of Silicon Valley Bank and two other regional banks last year, where startups and other small businesses were worried they wouldn’t be able to pay their employees the following week, according to Waters.
“As we saw with the collapse of Silicon Valley Bank, when banks quickly fail, small businesses are left scrambling to figure out how they’re going to pay their hardworking employees if they lose any money, while other businesses quickly transfer their funds from community banks to megabanks,” said Waters. “Or worse, they lose funds through no fault of their own because their community bank fails and is too small to protect with emergency tools.”
This isn’t fair to small businesses or their workers and it threatens to undermine community banks and credit unions while even more power is concentrated in megabanks, added the congresswoman.
“I look forward to working with my Republican and Democratic colleagues on the House Financial Services Committee to address this urgent, bipartisan issue for our community banks, credit unions, and the small businesses they are well positioned to serve,” she said.