Recent/upcoming developments… The 11/18 House Financial Services Committee (HFSC) hearing on the FDIC deposit insurance limit made clearer what up to that point key House Republicans had been generally signaling – that they have significant reservations about increasing the limit.  Chair Hill (R-AK) expressed concern about “potential unintended consequences,” while other senior committee members expressed similar sentiments (e.g., Rep. Barr (R-KY) said he was concerned about the cost of legislation sponsored by Sens. Hagerty (R-TN) and Alsobrooks (D-MD) that would increase the limit to $10m for certain business accounts, while Rep. Wagner (R-MO) signaled concern about moral hazard and market distortions.  As noted in our prior outlook on the deposit insurance limit, small and mid-sized banks support the Hagerty/Alsobrooks bill, while G-SIBs are opposed to it (presumably since it would erode their competitive advantage and also because they would have to absorb the bulk of the resulting FDIC insurance premium increases.  Secretary Bessent has repeatedly expressed support for increasing the limit and both House and Senate Democrats are generally supportive as well.

Our outlook… Push-back from House Republicans at the recent hearing to an increase in the deposit insurance limit was more intense than even anticipated, which suggests the probability of enactment for the Hagerty/Alsobrooks bill has marginally declined to 35% (from our prior 40%).  In order for the probability to rise to 50+%, we need to see Secretary Bessent actively working with committee leaders to overcome Republican concerns (rather than just making passive expressions of support) as well as additional momentum in the Senate.

Watch for these developments… In addition to watching for active engagement of Secretary Bessent on this issue, we are watching for the posture of Senate Banking Committee (SBC) Chair Scott (R-SC), who has supported a dialog around deposit insurance, but hasn’t actively pushed for an increase in the limit.  If Scott was to hold a vote on the Hagerty/Alsobrooks bill and if it was to pass in the SBC with strong bipartisan support, its probability of enactment will rise.  In addition, any signal that HFSC Chair Hill is actively engaged on finding a compromise on this issue would also be an indicator that legislation to increase the limit is gaining momentum.