What Bankers Must Know About Deposit Reform

*This article appears in the first quarter 2026 issue of Bank Director magazine.

A wave of legislative and regulatory activity is reshaping how deposits are insured, transferred and managed. While the outcome remains uncertain, community and midsize banks have much at stake.

The regional bank collapses of 2023 exposed how quickly uninsured balances can flee in times of stress. But other forces are accelerating reform, including a new administration, rapid advances in payments technology, the rise of digital assets and 24/7 transaction expectations.

Today’s deposit landscape is far removed from the era when the $250,000 insurance cap was set. Instant payments, tokenized deposits and stablecoins have transformed liquidity flows. Policymakers face a dual challenge: Modernizing deposit insurance to reflect real-time risk while ensuring smaller institutions can compete.

Three bipartisan bills aim to address these challenges:

The Keeping Deposits Local Act
Introduced in May 2025, this bill (H.R. 3234) would modernize the classification of reciprocal deposits — funds exchanged among banks that allow customers to access expanded Federal Deposit Insurance Corp. insurance while maintaining their local banking relationships.

Currently, reciprocal deposits above the lesser of 20% of liabilities or $5 billion are treated as “brokered,” triggering restrictions. H.R. 3234 proposes a tiered system: Banks under $1 billion in liabilities could exclude up to 50% of reciprocal deposits. This drops to 40% for banks with between $1 billion and $10 billion in liabilities and then to 30% for banks from $10 billion to $250 billion in liabilities. 

Only banks with good regulatory standing would qualify. For community and midsize banks, this change would enable retention of larger balances, reduce uninsured concentrations and treat reciprocal deposits as stable core funding. 

The Main Street Depositor Protection Act
This bill (S. 2999) would raise FDIC and National Credit Union Administration insurance limits for certain noninterest-bearing business transaction accounts to as much as $10 million at banks with under $250 billion in assets. The goal is to protect payroll and operating accounts that sustain small businesses during periods of stress. Insurance levels for savings and interest-bearing accounts would remain capped at $250,000 per customer identifier. While targeted, the expansion could enhance stability for employers with large operational balances, though implementation costs and complexity remain concerns. 

The Community Bank Deposit Access Act
This bill (H.R. 5317) proposes that certain custodial deposit relationships be classified as non-brokered, giving community banks greater access to stable funding. It reinforces the broader goal of ensuring equal access to competitive funding tools and supporting local economic growth. 

A Modernized Framework
These efforts reflect a fundamental rethink of deposit insurance for the digital era. 

Expanded reciprocal deposit capacity could reshape liquidity strategies and reduce reliance on surety bonds or excess collateral. However, broader insurance coverage raises concerns about moral hazard and the health of the Deposit Insurance Fund. 

Technology adds complexity. Stablecoins and tokenized deposits blur the line between traditional and digital money, while real-time networks like FedNow and RTP intensify liquidity management challenges. 

How Bank Directors Can Prepare

• Strategic assessment. Evaluate the core products and services needed to stay competitive. Identify essential capabilities, whether technological, operational or human, and determine whether to build, acquire or partner.
• Scenario analysis. Assess how proposed legislation could impact your business model. Consider effects on operations, risk and customer relationships.
• Stakeholder engagement. Engage with customers, regulators and peers to validate assumptions and gather insights. Use these conversations to refine strategy and align with market realities.
• Economic impact. Analyze short- and longer-term financial implications. Consider compliance costs, system upgrades and training. Explore new revenue opportunities from enhanced deposit flexibility.
• Implementation and guidance. Monitor regulatory developments. If H.R. 3234 is enacted, expect new FDIC definitions and reporting standards. 

The Bottom Line
Deposit stability is once again a policy priority — not just due to recent events, but because technology, policy and customer behavior are converging to reshape the industry. These legislative efforts offer practical modernization and bipartisan support for a resilient banking ecosystem.