Bessent Proposes Unlimited Insurance for Business Checking Accounts

The House Financial Services Committee convened Wednesday (Feb. 4) for a marathon session on financial sector stability lasting roughly five hours, characterized by sharp ideological divides and procedural maneuvering.

And while the hearing was ostensibly organized to review the Financial Stability Oversight Council’s (FSOC) latest annual report, the discourse frequently pivoted to broader philosophical disagreements regarding management of the American economy.

Within the back and forth with Treasury Secretary Scott Bessent, subjects covered ranged from stablecoins to fraud risk and the challenges and opportunities presented to small businesses and in particular small banks.

There was a contentious period of heated exchanges among members, and in fact there were a few instances where representatives and the Treasury Secretary talked over one another, jousting over tariffs, the Trump administration’s forays into cryptocurrencies and even the definition of inflation. In one notable exchange, ranking member Maxine Waters (D-Calif.) and Bessent sparred over whether immigration caused housing inflation. In another instance, Bessent was called a “flunky” for the current administration by Rep. Gregory Meeks (D-N.Y.).

In his prepared remarks, Bessent contended that the regulatory framework had become overly reactive. He told the committee that “rather than preempting crises, regulators have frequently reacted to them after the fact. They have played the role of a hazmat cleanup team instead of preventing dangerous spillovers in the first place.”

The Secretary’s testimony illuminated a fundamental tension between absolute security and economic vitality. Bessent argued that trying to eliminate all risk from the banking sector yields a stagnant environment that is paradoxically less stable. He warned federal agencies to “avoid the temptation to create a zero-risk financial system, which would result in what others have called, ‘the stability of the graveyard’.”

Regulations

Bessent attributed the collapses of 2023 to a misallocation of supervisory resources. He asserted that under the prior administration, regulators were preoccupied with “reputation risk” and “climate-related financial risks” rather than the core metrics of solvency.

“The result, predictably, was the second, third, and fourth largest bank failures in U.S. history in 2023,” Bessent said. He argued that “regulation by reflex” has not only undermined safety and soundness but has also stifled capital formation.

The Secretary outlined a path forward where the FSOC supports efforts to “modernize supervisory and regulatory frameworks for banks and credit unions.” He stressed that future supervision must address material risks and “reduce unnecessary burden” particularly for community banks.

“It’s Main Street’s turn,” for growth, said Bessent, “and essential to Main Street’s having its turn are the small community banks … sadly, more than 50% of community banks have disappeared since the Great Financial Crisis … there have been virtually no de novo banks created.” Regulatory tailoring, he said, is essential to fostering growth among smaller banks.

Deposit Insurance

Rep. Frank Lucas (R-Okla.) directed the conversation toward the mechanics of deposit insurance and the potential for extending coverage to specific types of commercial holdings. Representative Lucas touched on deposit insurance and the possibility of expanded insurance in a targeted way to non interest bearing transaction accounts. “Would that strengthen financial stability in the system?” he asked Bessent.

The Secretary’s response highlighted a critical disparity in market perception. He replied that there is a prevailing belief among banking customers that the largest institutions will never be permitted to lose money. Consequently, during periods of market stress, such as the Great Financial Crisis or the turmoil of 2023, “assets leave small banks. Much of that is known as the payroll account.”

Bessent advocated for a targeted expansion of coverage to level the playing field. He suggested that smaller banks should have noninterest bearing accounts that “have a much higher level of insurance so that they are able to retain deposits during a stress period.” According to Bessent, this adjustment would allow community banks to continue competing and lending to Main Street while alleviating “one of the biggest threats to financial stability.”

Stablecoins

While the primary focus remained on traditional banking architecture, the committee also examined the integration of digital assets into the broader economy. Chairman Rep. French Hill (R-Ark.) asked about digital assets, to which Bessent responded that the GENIUS act “is an important piece of legislation for brining back into the US the regulation and creation of digital assets and making the U.S. the national champions.” The stablecoins that would be created, he said, “could become an important financial feature of financing the U.S. government.”

Transaction Monitoring

The hearing also delved into the increasingly complex sphere of financial surveillance and fraud prevention. In his testimony regarding the FSOC’s priorities, Bessent identified cybersecurity as a paramount concern. He noted in his testimony that “nation-state actors and criminal groups continue to target our financial institutions and critical infrastructure.”

To mitigate these threats, the Council is supporting “expanded information sharing, joint monitoring, and scenario-based exercises,” per the testimony. Bessent emphasized the necessity for regulated firms to rigorously manage cyber risks tied to “third-party service providers.”

Fraud, per comments from Rep. Tom Emmer (R-Minn.), remains a key concern in finance, though he stated that transaction reporting and oversight as part of the Bank Secrecy Act (BSA) and anti-money laundering (AML) frameworks, with the current $10,000 threshold, means the vast majority of reports are focused on law-abiding citizens. He said higher value transaction thresholds would more accurately capture illicit financial activities. Bessent replied that geographical targeting of transactions would be an option and said regulators have been meeting with small banks for their feedback in a bid to incorporate “best practices … to get the right mix of enforcement and common sense.”

Touching on bank mergers and oversight of those mergers, Bessent said that “regulatory certainty is important and the ability to grow through acquisition is also important. We just want regulators to put down the framework and stick to the framework, and not to regulate through supervision.” A pullback on regulation from the FDIC, OCC and Federal Reserve, he told lawmakers, would help smaller banks “get Main Street going again.”