Congress is considering legislation that sounds noble — protecting depositors — but delivers the opposite of what South Carolinians expect from their elected representatives. The proposal to raise FDIC deposit insurance from $250,000 to $10 million represents a massive wealth transfer from ordinary depositors to the richest Americans, all disguised as a reform to help Main Street.
About 99 percent of deposits already fall within current Federal Deposit Insurance Corp. coverage. The existing $250,000 limit protects virtually every working family, small business and retiree in South Carolina. The remaining 1 percent consists of sophisticated parties with large corporate accounts who should — and can — manage their own risk. Expanding coverage to $10 million doesn’t protect Main Street; it subsidizes elite depositors at Main Street’s expense.
The mechanics are straightforward but troubling. When deposit insurance expands, the FDIC must charge higher premiums to banks to fund the increased risk. Banks, facing higher costs, respond predictably: They reduce interest rates on deposits, increase fees on services and tighten lending standards. The result? Everyday South Carolinians pay more for banking services and earn less on their savings so that corporate treasurers with multimillion-dollar accounts can enjoy taxpayer-backed guarantees.
As former acting chairman of the Council of Economic Advisors Tomas Phillipson wrote, this is Robin Hood in reverse — taking from the poor to give to the rich, with the federal government as the intermediary.
Consider the recent track record. In 2023, when Silicon Valley Bank collapsed, the FDIC deployed $20 billion to cover depositors, with 90 percent protecting uninsured accounts. These weren’t families who lost their life savings; they were venture capital and tech companies that made conscious decisions to concentrate risk in a single institution. Under this new proposal, such bailouts would become routine rather than exceptional, with costs perpetually passed to ordinary banking customers.
There’s also the danger of moral hazard. When the government shields people from the consequences of risky choices, they make riskier choices. Deposit insurance was created to prevent bank runs by protecting ordinary savers, not to eliminate all market discipline from banking. Extending coverage to $10 million tells depositors they need not scrutinize their banks’ safety or diversify their holdings. This inevitably leads to more reckless behavior and bigger failures down the line.
South Carolina’s community banks don’t need this policy, and they certainly don’t want the burden it imposes. These institutions compete successfully today based on relationships, service quality and prudent management. Forcing them to pay higher FDIC premiums to protect accounts they’ll never hold makes no sense. It’s particularly perverse that the largest Wall Street banks would be exempt from portions of this scheme, leaving mid-size institutions bearing disproportionate costs.
Fortunately, South Carolina’s U.S. Sen. Tim Scott is in a perfect position to stop this reckless proposal as chairman of the Senate Banking Committee. Throughout his career, he’s championed free markets, opportunity and fiscal responsibility. This deposit insurance expansion contradicts those principles. It replaces market discipline with government guarantees, imposes regressive costs on working families, and invites the next financial crisis by removing accountability from large depositors and the banks that court them.
That’s why I urge Sen. Scott to use his authority to stop this misguided proposal. True banking stability comes from sound management and market accountability, not from expanding taxpayer subsidies for those who need them least.
Katon Dawson is a former S.C. Republican Party chairman who represents community banks in the South and Northeast.
Raising FDIC deposit insurance cap would hurt SC businesses
