NEW YORK CITY, UNITED STATES – JUNE 25: JPMorgan Chase’s newly built 60-story headquarters at 270 Park Avenue, the largest all-electric skyscraper in New York City, is illuminated in American flag colors ahead of Independence Day in New York City, United States, on June 25, 2025. The display covers the full height of the tower, marking the upcoming Fourth of July celebrations. (Photo by Selcuk Acar/Anadolu via Getty Images)
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270 Park Avenue is the address of J.P. Morgan’s remarkable new headquarters, but also a metaphor for the very real dangers associated with increasing federal deposit insurance. Presently the maximum per account insured by the FDIC is $250,000, but there’s talk in Washington of increasing coverage to $10 million. This would be a huge mistake.
The error in lawmakers’ ways can be found in the majesty of J.P. Morgan’s new building. The sheer size and scope of it is a powerful market signal that J.P. Morgan is the wise and extraordinarily prudent steward of customer wealth. Call this new addition to New York City’s already picturesque skyline an effect of substantial customer trust built up over many decades, and in the case of J.P. Morgan, centuries.
Please consider the size and stature of J.P. Morgan, Wells Fargo, Bank of America and other major banks in relation to the proposed FDIC legislation. Implicit in the latter is that government can place its proverbial thumb on the scale to legislate smaller, less seasoned banks into much bigger, highly effective ones. No, that can’t be done. If governments could create big and successful businesses by legislative decree, then ours and many others would have already done so.
In truth, industrial policy of any kind invariably weakens the sector that government turns its gaze to, and for obvious reasons. That’s because the good businesses don’t require the subsidy, while the lesser businesses rely on it for sustenance.
Thought of in terms of banks, the size of the biggest U.S. banks is yet again a market symbol of substantial consumer trust in how they handle the funds put in their employ. Translated, customer accounts don’t require substantial insurance as evidenced by their size.
Just the same, what a gift $10 million/account insurance would be for smaller, less competitive banks. Though frequently unable to compete with larger institutions in head-to-head fashion, increased insurance would position smaller banks to compete via rates paid on deposits. And to some degree, yield hungry savers and corporations would gladly take them up on the higher rate offer? Why not if the downside is protected?
Of course, in the question we can find the problem with the legislation. While there’s a tendency among politicians and pundits alike to ascribe nobility to the smallest of businesses, there’s a not insubstantial market signal itching to be seen within the small.
Specifically, it’s the markets telling us that maybe they’re small for a reason. With banks, either they never had the ambition to be large, or perhaps they’ve never done the kind of good work necessary to be large. It’s the latter that should have readers worried. Think about it.
Assuming an expanded subsidy of the $10 million/account variety, can it be asked if banks not used to handling big sums of money suddenly attain that ability via legislative decree? The answer is in the question. There’s a reason some banks can lay claim to endless accounts in sizes that well exceed $250,000, and there’s a reason that others don’t.
All of which speaks to the substantial danger inherent in deposit insurance legislation: it subsidizes the small at the expense of the big that have grown big precisely because customers trust them with sums much greater than $250,000. Just the same, some but not all banks that are small perhaps remain that way because they’ve not demonstrated an ability to effectively put enormous amounts of money to work.
Which is just a call for legislators to step back, and retreat from legislation that has the potential to be very damaging. In sanctifying small banks at the expense of big ones, legislators imperil the banking sector in total.