A “Main Street” Bank Bill That Would Really Hurt Main Street

A bill that promises help for small businesses would mostly hand the gains to the biggest banks. The cost would fall on the people already shut out of loans.

In Washington, the name on a bill is often the opposite of what it does.

The Main Street Depositor Protection Act is the latest example. The name sounds noble. The math is not.

Here is what the bill would change. The FDIC is the federal agency that pays you back if your bank closes its doors. Today, it covers up to $250,000 in each account. Most people never come close to that limit. Most small businesses do not either.

The bill would let the FDIC raise that limit as high as $5 million for business checking accounts that pay no interest. That is not a small bump. That is twenty times bigger.

Supporters say the change will help small community banks and the small businesses they serve. I wish that were true. It is not.

The current $250,000 limit already covers 99 out of every 100 bank accounts in this country. A study by JPMorgan Chase found that the typical small business keeps about $12,100 in its account on a normal day. The new limit would be more than 400 times higher than that.

So who really gains from a $5 million guarantee? Not the corner bakery. Not the family barbershop. Not the small farm down the road. The gain goes to the biggest depositors at the biggest banks. The bill even covers banks with more than $100 billion to their name. Fewer than one in 100 banks in America are that big. No honest person would call them “small.”

In other words, the bill takes the name of Main Street and hands the prize to Wall Street.

Here is the part that should worry every American. Insurance is not free. When the FDIC raises its guarantee, banks must pay more to fund it. When banks pay more, they lend less. When they lend less, the door closes hardest on the people who are already locked out.

Black-owned businesses are already turned down for loans 39 percent of the time. That is more than double the 18 percent rate for white-owned businesses. 

Hispanic-owned businesses face a 29 percent denial rate. These are the dreamers most likely to hear “no” when they walk into a bank. A new cost on lending will make that “no” come faster and louder.

The economy runs on loans. When loans dry up, the trouble spreads. The Great Recession of 2008 began exactly that way. The people who pay the highest price are never the wealthiest. They are the families with the least cushion to fall back on.

The bill does offer a small shield to community banks under $10 billion. They would not pay the higher costs for ten years. That is a kind gesture. But the wider damage to the loan market will not wait ten years to arrive.

There is one more problem. Deposit insurance works in part because it has limits. Limits force big depositors to pay attention to where they put their money. That attention keeps banks honest. Take the limit away, and you take the watchdog away too. The taxpayer is left to clean up the mess.

The goal of helping Main Street is a good one. This bill is not the way to reach it.

If Congress wants to help small business, it should make loans easier and fairer to get. It should invest in the neighborhoods that banks have ignored for too long. It should knock down the doors that have stayed shut for Black and Hispanic business owners for generations.

And if big corporations want extra protection for their millions, they can pay for it themselves. The taxpayer should not be asked to insure the comfort of the rich while the dreams of working families go unfunded.

Read the name of a bill. Then read the math. The two should match. On the Main Street Depositor Protection Act, they do not.

Ben Jealous is a professor of practice at the University of Pennsylvania and former president and CEO of the NAACP.