Efforts by Democrats in the US Congress to tackle controversial issues tied to recent bank failures will likely be thwarted by the Republican-controlled House.

Democrats are looking to raise the Federal Deposit Insurance Corp.'s deposit insurance limit, as well as return capital, liquidity and stress-testing requirements to a higher standard for regional banks.

However, those efforts will likely be met with stiff opposition by Republicans in the lower chamber, leaving it to the regulatory agencies to make major overhauls where they can, industry observers told S&P Global Market Intelligence.

"I think people should manage their expectations for how much legislation is ultimately going to become law," said Ian Katz, managing director at Capital Alpha Partners. "I do think there are some possibilities, but I think it will be a while."

Meanwhile, early indications point to more bipartisan support for legislation to claw back compensation from failed-bank executives and a bill that would prohibit bank employees from sitting on the boards of the Federal Reserve's banks that oversee their companies.

Deposit insurance

The question of raising the FDIC deposit insurance limit has been a subject of vigorous debate on Capitol Hill since the failures of Silicon Valley Bank and Signature Bank, both of which had large amounts of uninsured deposits. Regulatory agencies took emergency action to insure all deposits of those banks, and now some legislators are questioning if $250,000 is enough.

Sen. Elizabeth Warren (D-Mass.) voiced support for raising the limit on CBS News' "Face the Nation." However, conservative Republicans in the House Freedom Caucus came out swinging against an increase, saying in a statement that they "oppose any universal guarantee on bank deposits over the current limit."

In a divided Congress, the chance for legislators to increase the existing FDIC limit is slim, Katz said.

"We think a large, across-the-board increase has become unlikely — less than a one-in-three chance — though we wouldn't rule out a tweak that adjusts the limit for inflation," Katz wrote in a note. "While an increase and separate category of deposit insurance for nonbusiness accounts is close to a toss-up … Even that will be a tall order in a divided Congress that seems permanently distracted by whatever is in the headlines at the moment."

If lawmakers do not raise the limit, it likely will remain at $250,000 because it is unclear if the FDIC has the authority to unilaterally raise it. During the Great Recession, Congress temporarily raised the limit to its current $250,000 and then later made that change permanent in 2010.

Capital and liquidity requirements

In another area of intense debate, both lawmakers and regulators are looking at whether to tighten capital and liquidity requirements and put in place more rigorous stress testing for regional banks.

Dozens of Democrats in both the House and Senate are supporting a measure that would return stricter rules to banks with $50 billion or more in assets, reversing 2018 legislation that raised the threshold to $250 billion. Silicon Valley Bank and Signature Bank both had over $100 billion in assets, though they were not subject to enhanced scrutiny.

However, the 2023 bill is facing opposition from Republicans, making it more likely that future increased regulation on regional banks will come from the regulatory agencies.

"The rollback of the 2018 changes is the most likely thing, maybe without even congressional action," said James Stevens, who co-leads the financial services industry practice at Troutman Pepper. "The regulators could just say they're going to apply those rules to all banks with $100 billion or more in assets. I think there's a very high chance that that happens."

Top regulators such as Federal Reserve Vice Chair for Supervision Michael Barr and FDIC Chairman Martin Gruenberg have said they support intensifying regulation for regional banks with more than $100 billion in assets.

There were 23 banks with between $100 billion and $250 billion in assets at Dec. 31, 2022, according to S&P Global Market Intelligence data.

Tightening bank governance

While it is unlikely that Congress will agree and act on deposit insurance or regional bank regulation, other bills that are percolating have better odds of passing.

"I do think there is a chance to pass some specific things that tighten oversight of the Fed and bank governance," Capital Alpha's Katz told Market Intelligence.

In the Senate, lawmakers introduced a bipartisan measure that would require the FDIC to claw back bank executives' compensation received in all or part of the five-year period prior to a bank's insolvency or FDIC resolution.

Also in the Senate, Sen. Bernie Sanders (I-Vt.) introduced legislation that would prohibit bank officials from serving on their own regional Fed's board of directors. The bill was prompted by the fact that Gregory Becker, the CEO of Silicon Valley Bank, served on the board of the Federal Reserve Bank of San Francisco.

Bills such as these are examples of "low-hanging fruit" that can possibly provide a smoother path to agreement across party lines and passage in Congress, said Jim Adkins, a managing partner at Artisan Advisors LLC.

For example, prohibiting bank officials from serving on their own regional Fed board of directors would "clear up an obvious conflict of interest," Adkins said.