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For most small and midsize business owners, “liquidity management” doesn’t mean treasury models or risk curves. It means making sure every paycheck clears on Friday, every supplier gets paid on Monday and every family can count on the job that depends on both. Their working capital isn’t theoretical — it’s the cash that keeps Main Street alive. Yet today, those funds — payroll, payables and operating cash — are only insured up to $250,000, leaving millions in ordinary
When dollars stay local, they work locally. Midsize and community banks recycle those dollars back into their communities, typically lending out more than 70% of deposits. A dollar kept in a midsize bank is far more likely to reappear as a job, a delivery truck or a new roof on a local factory.
The greatest threat to the midsize bank business model isn’t a new regulation or market downturn — it’s inertia. A “do-nothing” approach on deposit insurance guarantees the continued migration of deposits to the largest institutions, driven by the perception that scale confers safety.
That’s not just a competitive imbalance — it’s a systemic problem. As deposits consolidate at the top, three dynamics take hold. First, local credit weakens as midsize banks lose the stable, relationship-based funding that powers small-business lending and job creation. Second, market power concentrates as the largest banks enjoy an implicit confidence premium — funding more cheaply and growing faster, not because they perform better but because depositors assume they’re safest by size. Third, fragility increases as complexity and concentration make the system harder to stabilize or resolve.
It’s a paradox: The more concentrated the system becomes, the more vulnerable it gets. Depositors aren’t irrational — they’re responding to policy signals that reward concentration and punish diversity. If nothing changes, the U.S. risks drifting toward a system where access to credit is controlled by a handful of institutions — stable perhaps, but less dynamic, less responsive and far removed from Main Street.
Policy shouldn’t just slow that migration — it should rebalance it. A resilient banking system depends on a broad base of well-capitalized, locally engaged banks meeting the needs of employers and families nationwide.
That starts with deposit insurance reform. The $250,000 cap was set for a different era — before real-time payments and digital payrolls measured in millions. An ordinary operating account for a manufacturer, hospital or contractor can hold several million dollars just to cover a few weeks of wages and payables. When confidence wavers, those uninsured funds don’t wait; they move instantly to wherever depositors perceive protection.
Emergency powers are useful but unpredictable. Business owners shouldn’t have to monitor political winds wondering whether Washington will “flip the switch” to guarantee their payrolls. That uncertainty alone — magnified by instant communication — turns anxious moments into self-fulfilling runs. A standing framework removes that guesswork and prevents the very emergencies those powers were designed to address.
Some point to reciprocal or sweep networks as substitutes for reform. They help, but they’re not a foundation. In practice, they’re complex workarounds — financial engineering that redistributes deposits across multiple institutions to simulate insurance. It’s like giving a household thirty umbrellas instead of building a roof: useful in light rain, but leaky in a storm. They add fees, contracts and operational complexity to mimic something that could simply exist in statute. Relationship banks shouldn’t need intermediaries to offer the same confidence that size alone currently provides.
The bipartisan Main Street Depositor Protection Act, introduced by Senators Bill Hagerty and Angela Alsobrooks, provides that framework. It offers up to
It’s targeted, not blanket; focused on operating cash, not investments. It’s funded by the industry, not taxpayers, and phased in over 10 years with strong guardrails and anti-evasion rules.
Critics warn of “moral hazard,” but
Market discipline should apply to a bank’s creditors and investors, not its depositors. Even the most sophisticated companies aren’t equipped to evaluate a bank’s true financial condition — something recent failures made painfully clear. Extending coverage to payroll accounts doesn’t weaken market discipline; it restores confidence in community and midsize banks, reduces systemic risk and keeps credit flowing to Main Street.
Replacing lost deposits with wholesale funding costs multiples more than maintaining a modest, risk-based insurance premium. When operating balances migrate away, they take with them treasury relationships, data visibility and lending pipelines. It’s better to insure payroll where it sits than to pay for it after it leaves — and better to keep dollars in institutions that lend them back into their communities than to see them pool where they’re least likely to be recycled.
This reform isn’t about protecting banks — it’s about protecting paychecks. A 35-person contractor or 120-person food processor may be classified as “small,” but they’re vital in the towns where they operate. Their accounts aren’t investments — they’re the rails that carry wages and payments through the real economy.
If enacted, the Main Street Depositor Protection Act will let business owners keep their operating cash where their customers and employees are — fueling local economies instead of concentrating them.
No bailouts. No blank checks. No taxpayer exposure. Just a precise, modern reform to ensure paychecks clear, confidence holds and Main Street dollars keep working locally. Midsize, regional and community banks deserve a system that reflects the world they operate in — and Main Street deserves the same confidence, wherever it banks.