The collapse of Silicon Valley Bank in March has led to a debate about federal deposit insurance. On one side are academics and experts who believe that the government should guarantee all deposits. In addition to protecting funds of small businesses that must keep significant cash for payroll, and preserving smaller banks that don’t have a “too big to fail” guarantee and carry risk of deposit flight, these supporters also have a secondary motive: reframing the debate about the nature of money, and the essential role government plays in its creation and maintenance. On the other side are those who see deposit insurance, capped at $250,000, a number six times that of the average deposit balance, as a consumer protection feature. Continuing the risk that the cap poses to large and more sophisticated depositors who stand to lose money if the bank collapses will instill discipline on bank managers to run their operations better, in this telling. Proponents of keeping the cap have also said that uncapped insurance would be a regressive giveaway to the rich . . .
A company called IntraFi offers two products that allow large depositors to spread their money among a network of hundreds of banks, each with accounts that don’t exceed the cap and are therefore effectively covered in full by deposit insurance. The company takes a fee for facilitating these “brokered deposits.” If deposit insurance were uncapped, their business model would be worthless.
The prospect of uncapping has the extremely well-connected officials at IntraFi scrambling. In the first quarter of 2023, when Silicon Valley Bank was shuttered, IntraFi tripled its registered lobbying expenses and hired a firm known for its access to senior congressional leadership. The new lobbyists who registered to work for IntraFi have experience with senior members of Congress, as well as the Trump and Obama White Houses. It’s a full-court press to maintain a lucrative status quo.
