When the Trump Administration and Senator Elizabeth Warren agree, a skeptical eye is warranted — consider their opposition in 2024 to Nippon’s acquisition of US Steel. Yet, sometimes they are on to something good — like raising the ceiling on FDIC deposit insurance.

After the 2008 Global Financial Crisis, the limit on individual and business checking accounts was boosted from $100,000 to $250,000, but since then the cash needs of startups and smaller businesses has increased.

The Silicon Valley Bank, which failed in 2023, mostly served high-tech startups and other niche groups like wineries. The former often raise capital through major equity rounds and bank millions in proceeds to gradually spend on expenses.

About 94% of SVBs deposits exceeded the $250,000 limit.

SVB’s high-tech clients required specialized services but didn’t often seek large loans. Only 35% of SVB assets were loans, and the majority were invested in Treasury and government agency securities.

As the Federal Reserve raised interest rates in 2022, the market value of long-dated, high quality securities fell even though those pay out in full at maturity. That gave SVB a liquidity problem that ultimately resulted in a bank run.

Senators Bill Hagerty (R-TN) and Angela Alsobrooks (D-MD) have introduced a bill to increase the FDIC insurance cap for non-interest bearing checking accounts, where most small businesses keep their working capital, to $10,000,000 at all but the largest banks.

The latter are Globally Systemically Important Banks, include familiar names like Citigroup and JPMorgan Chase and are subject to tougher regulations—annual stress tests, larger capital requirements and resolution plans to wind down operations should they become insolvent.

Through that regulatory framework the federal government implicitly acknowledges that G-SIBs are too big to fail. That makes them more attractive to large customers than regional banks.

In mid-October, Zions Bancorporation and Western Alliance Bancorp reported losses on loans owing to alleged fraud by borrowers, and their the stocks fell significantly.

Regional banks generally took a hit with the Dow Jones Select Regional Bank Index falling nearly 7% from October 14 to 16.

Both the individual stocks and overall index rebounded but investors remain nervous about conditions in credit markets after the bankruptcy of private lender Tricolor.

Similarly, when SVB experienced a run and failed, a contagion spread to Signature Bank and First Republic Bank.

Had SVB deposits been insured at a higher level, it might not have failed.

SVB had a solid loan book — Apollo, Blackstone and others expressed interest in purchasing it.

Ultimately, the SVB was merged into First–Citizens Bank with assistance from the FDIC. Similarly, most of the assets, deposits and branches of Signature Bank were acquired by Flagstar Bank, and JPMorgan Chase absorbed most of First Republic Bank.

Deposits were honored in full by the FDIC and financed by a special assessment on member banks.

Critics of a higher ceiling for deposit insurance assert it would encourage large depositors to be careless in choosing banks. It would cause banks to take imprudent risks — so-called moral hazard. And a higher insurance ceiling would require more costly regulations for regional and community banks.

That’s foolish.

We can’t expect retirees with perhaps $2 million in savings — $500,000 in bank deposits and the balance in a ladder of bonds and stocks — to scrutinize bank balance sheets. The same applies to entrepreneurs establishing technology companies, wineries and most other businesses.

It’s beyond their expertise of folks without backgrounds in finance or economics.

The Hagerty-Alsobrooks proposal would be improved by including interest-bearing accounts and CDs where ordinary investors stash cash.

Stockholders and officers of insolvent banks get wiped out and lose their jobs too and that’s their incentive not to be reckless.

Treasury Secretary Scott Bessent supports a higher insurance ceiling to better level the playing field between regional and G-SIBs and a lighter regulatory burden.

SVB did not fail because it was run by lousy bankers.

The Trump and Biden Administrations undertook massive deficit-financed COVID-relief spending. The Federal Reserve enabled this policy by printing money to buy the resulting new bonds, and that instigated the first rush of unacceptably high inflation since the GFC.

When the Fed sobered up and raised interest rates in 2022, the market value of long-term securities held by banks fell by 30%.

Sadly, SVB was particularly hard hit.

An alert bank examiner would have seen that SVB was at risk and needed to rebalance its portfolio.

In the wake of the SVB contagion, the application of existing regulations and bank oversight have tightened.

What is needed and hasn’t been proposed is establishing a Federal Reserve facility that would permit banks to borrow against the face value of their federal government and agency bonds—these are safe and will payout in full at maturity.

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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.