▶ 0:08:42Committee on Financial Services will come to order. Without objection, the chair is authorized to declare a recess of the committee at any time. Today's hearing is entitled The Future of Deposit Insurance: Exploring the Coverage Costs and Depositor Confidence. Without objection, all members will have five legislative days within which to submit extraneous material to the chair for inclusion in the record. I now recognize myself for a 4-minute opening statement.
▶ 0:09:09Today's hearing will examine the deposit insurance framework in the United States, potential reforms that have been proposed, and key questions for policymakers to consider. Like the Senate Banking Committee, the House Financial Services Committee has been and will continue to be taking an approach that is thoughtful, deliberative, and datadriven. As we'll hear from our expert witnesses today, there's a wide ranging set of views on this matter with no consensus.
▶ 0:09:38When it comes to deposit insurance reforms, there are no easy answers, and choices always come with tradeoffs. That's why several discussion drafts have been noticed to the hearing today so that members can appreciate just how many ideas are out there.
▶ 0:09:54A discussion about deposit insurance cannot be complete unless we also talk about the muchneeded improvements to the bank resolution framework which were laid bare by the bank failures that we saw during the spring of 2023 and made worse by actions taken then by the Biden administration. Let's be clear, deposit insurance was not the cause of those bank failures.
▶ 0:10:18They were the result of poor risk management by certain regional banks and the failure of federal and state supervisors to identify fix problems that had already been focused upon by the examiner force. No level of deposit insurance would have made up for the erosion of the failed bank's identified deficient management decisions and the resulting impact on capital. The banks were insolvent and increased deposit insurance wouldn't have fixed that.
▶ 0:10:46That's why legislation addressing the policy ideas like the least cost resolution mandate and the national concentration limits must be part of the conversation if we're going to take a comprehensive look at deposit insurance and prevent the 2023 bank failure type scenario from happening again.
▶ 0:11:07Going back to its creation during the Great Depression, the FDIC's deposit insurance fund was intended to stabilize the banking system and now ensures up to per account. Currently, less than 1% of deposit accounts have balances above this level. The purpose of deposit insurance was twofold. To protect average Americans and to prevent destabilizing bank runs from occurring.
▶ 0:11:33This new framework carried a presumption that large depositors such as corporations and wealthy individuals had the capacity and resources to properly assess their bank's health, to diversify their deposit holdings, to secure their deposits, or to buy additional insurance on the private market. As we consider any potential changes to the deposit insurance framework, I believe our work must be informed by answering some key questions.
▶ 0:12:02What is the problem that we're trying to solve? Who will benefit? What are the costs and who will pay them? What are the potential unintended Do we have the data to make an informed decision? And if not, what are the gaps? Our guiding principle should be to ensure the stability of the banking system, maintain depositor confidence, fairly aortion costs, enforce market discipline, and reduce moral hazard.
▶ 0:12:33With that, I thank our witnesses for being with us today. I'm grateful for our colleagues attendance and I yield back the balance of my time. And now I recognize the ranking member of our full committee, Mrs. Waters, for four minutes for an opening statement.
▶ 0:12:47Thank you very much, Mr. Chairman. Good morning. Uh, thank you to our witnesses for being here today to discuss deposit insurance. I wish uh we could have held this hearing a lot sooner, but Speaker Johnson shut down the House for two months and the Trump Republican shutdown rendered the government lifeless for 43 days, surpassing the record set during Trump's first term. And for what?
▶ 0:13:14all to avoid lowering health costs for workingclass Americans. Now, during the shutdown, [clears throat] I visited food banks all across Los Angeles County and saw lines of families who were being used as political afraid their babies might starve as Trump [clears throat] fought twice in the Supreme Court to block their food stamp benefits.
▶ 0:13:40I heard federal employees agonize over how to keep a roof over their heads after missed paychecks. I heard the worries of furled workers wondering if they'd even get paid after the shutdown following Trump's threats. Meanwhile, millions of families are now watching their health care premiums triple.
▶ 0:14:03Then they turn on the TV to see the president offering a 40 billion bailout to Argentina and demolishing the east wing of the White House to build a 250 million ballroom. All while Republican members of Congress enjoyed our pay vacation and remain deafening silence.
▶ 0:14:28At the same time, the administration moved to gut the Consumer Financial Protection Bureau, the bipartisan Community Development Financial Institutions Fund, which will make life even more expensive for families and small businesses. Thanks to Trump and Republicans, Americans are suffering through an affordability crisis with little hope in sight.
▶ 0:14:52Trump's response has been to dismiss Americans concerns as a quote con quote unquote. Well, it takes one to no one. The American people see through Trump's con of giving hands outs and favors for the super rich while raising prices on everyday [clears throat] Americans.
▶ 0:15:13is why more than half of Americans aren't with the direction of the economy under Republicans and blame Trump for the high cost. down on deposit insurance.
▶ 0:15:27Since the fall of Silicon Valley Bank in 2023, I've led the effort to advance reasonable solutions to support our community banks and credit unions while protecting small businesses so they can bank with their local lenders and pay their workers even in a crisis. I'm pleased the chairman has convened this hearing and posted my legislation. Thank you, Mr. Chairman.
▶ 0:15:54The legislation, the Employee Paycheck and Small Business Protection Act, quote unquote. My bill takes a data-driven approach to increase the deposit insurance limit for business payment accounts, while the FDIC and NCUA study.
▶ 0:16:13My bill also allows regulators to quickly establish a transaction account guarantee program to prevent contagion and temporarily protect depositors for up to nine months in a future emergency. Even Treasury Secretary Bisset and Vice President Vance agree that action on deposit insurance reform is overdue. while reviewing the Republican proposals.
▶ 0:16:42I'm hopeful that the chairman will work with me and all of our colleagues so we can get something done. I think we can have bipartisan on this one, Mr. Chairman. So, I look forward to testimony and I yield back.
▶ 0:16:56Gentlewoman yields back. Now recognize the chair of our subcommittee on financial institutions, Mr. Bar of Kentucky, for one minute opening
▶ 0:17:03Following the banking instability of 2023, there were calls to reform deposit insurance. Members on this committee did not rush to enact legislation that might have resulted in unintended consequences, but rather took the time to examine potential reforms. And today's hearing is a result of this education. Properly calibrated deposit insurance is paramount to protect taxpayers and the stability of our banking system.
▶ 0:17:26Changes in the banking landscape, such as online banking, can create real-time risks, and an increase in uninsured deposits, has posed questions about the current status quo. As we consider any potential deposit insurance reforms, our goal should be to protect the diversity of our banking system. Community banks, midsize banks, regional banks, gibs. Uh that is our competitive advantage. We must also consider the potential for moral hazard. How reforms will impact the smallest financial institutions assessments.
▶ 0:17:54Public trust in our banking system through FDIC insurance cannot be lost. It is our job as members of Congress to protect this trust, taxpayers, and the diversity and stability of the banking system. I look forward to examining the deposit insurance landscape in today's
▶ 0:18:08Gentleman yields back. I recognize the ranking member from the subcommittee on financial institutions, Dr. Foster of Illinois, for a one minute opening
▶ 0:18:16Uh, thank you, Chairman Hill and Ranking Member Waters. Deposit insurance has been one of the real triumphs of financial regulation of the last 100 years. Uh, prior to the FDI's creation, there was a steady drum beat of banking failures and people simply didn't know that their money would be safe in a bank.
▶ 0:18:32Um after that um every today every um every depositor of a US bank or credit union knows that their financial institution if it ever gets in trouble the deposits less than 250,000 will be protected and this is essential to stopping the contagion which was the true systemic risk of the events of Um however uh you know social media technology and consumer behaviors have evolved a lot since 2008 and the events of 2023 were a warning that technologydriven bank runs
▶ 0:19:02of today can be much larger and faster and this uh so this committee I agree should take a datadriven approach to deposit insurance reform with a full understanding of the cost and benefits of the reform. So I thank the chairman for noticing this hearing and look forward to the witness's testimony.
▶ 0:19:19Gentlemen yields back today. We are delighted to have the testimony of Mr. James Ryan, chairman and CEO of Old National Bank. Miss Jill Castillia, president and CEO of the Citizens Bank of Edund, Oklahoma. Mr. Chris Farllo, the president CEO of the Texas Bankers Association. Mr. Grover Norquist, founder and president of Americans for Tax Reform. And Mr. Jared Anderson, partner and co-chair of the financial services group at Paul Weiss. We're delighted to have you. Each of you will be recognized for five minutes to give an oral presentation of your testimony.
▶ 0:19:48And without objection, your written statements will be made a part of the record. Mr. Ryan, we're going to start with you. You're recognized for five minutes. Chairman Hill, ranking members, ranking uh member Waters and members of the committee. Thank you for the opportunity to testify. I'm Jim Ryan, chairman and CEO of Old National Bank in Evansville, Indiana based institution with $71 billion in assets and more than 350 locations across the Midwest.
▶ 0:20:14I'm proud to say Old Nashville's been serving clients and strengthening communities since 1834. I'm also pleased to serve as a board member of the Midsize Bank Coalition of America and as vice chair of the American Bankers Association, but I'm here today representing Old National Bank. I think my views are consistent with other midsize bank CEOs. America's banking system is strongest when it includes large national banks, midsize banks like Old National and smaller community banks.
▶ 0:20:43This diversity creates resilience and ensures that all communities enjoy access to financial services. Since the 2008 financial crisis, large banks have grown significantly. Yet, the reality is they do not serve all communities or all businesses. Meanwhile, the number of smaller banks continue to decline. To support a healthy economy and vibrant communities, we need banks of all sizes working together.
▶ 0:21:09As I mentioned, Old Nashville has been in operations for nearly 200 years, serving clients and communities that are nation's largest banks sometimes overlook. Like all midsized and community banks, our ability to keep credit flowing locally depends on confidence in deposits. And today's FDIC insurance limit of 250,000 unchanged since 2008 has not kept pace with the growth of the economy and the speed of money and information.
▶ 0:21:38We live in a world where money and information move at digital speed. As a result, liquidity stress can unfold at digital speed as well. We saw this in March of 2023. Deposits left midsize and community banks while the largest banks reported tens of billions of dollars of inflows without raising rates. Uninsured business operating accounts drove deposit flight to the largest banks, not because of price, but because of the perception of safety.
▶ 0:22:06that inequity undermines trust, concentrates risk, and drains funding from the banks that finance Main Street. A solution such as the Main Street Depositor Protection Act introduced by Senators Hagerty and also Brooks is narrow by design, targeting FDIC coverage for non-interest bearing accounts used for payroll, payables, and working capital. As you know, moral hazard arises when insurance encourages risk-taking or yield chasing. That does not exist with non-interest beparing operating accounts.
▶ 0:22:35These balances are not attracted by offering higher returns. They exist only to fund payroll and daily operations. This reform is about protecting paychecks and critical payment systems, not shielding banks. We're not talking about ensuring speculative investments or personal wealth accounts. We're talking about the operating cash that keeps employees paid. This gives Main Street businesses the confidence to maintain their existing deposit relationships with banks and bankers who truly know them and their businesses.
▶ 0:23:04This reduces systemic risk, lowers the threat of widespread deposit plight, and preserves local lending capacity. This reform is also industry-funded through riskbased assessments, no taxpayer appropriations. Some have charged that deposit insurance modernization will entail significant cost to institutions. However, the greatest costs come from inaction, higher wholesale borrowing, repeated emergency measures, and long lost longtime relationships.
▶ 0:23:33The estimated cost of deposit insurance reform is somewhere between two to five basis points. This modest riskbased premium substantially lower than the 25 to 50 basis points typically incurred through wholesale funding or emergency borrowing. The Federal Reserve's analysis confirms that in 2023, banks experiencing deposit outflows were forced to replace lost deposits with higher cost borrowing, underscoring the reform's cost effectiveness.
▶ 0:23:58Our nation's midsize and community banks are the connective tissue between local deposits and local lending. When operating cash feels safe and secure at hometown banks, we can keep doing what we do best, turning deposits into loans for equipment, working capital, and expansion along with reinvesting in and driving economic growth within our The Main Street Depositor Protection Act is not about bailouts or special favors.
▶ 0:24:24It's about modernizing insurance for accounts that keep Main Street America thriving so that confidence holds, paychecks clear, and our nation's banking system stays diverse and resilient. I urge Congress to act enact targeted deposit insurance reform for business operating accounts. Modernizing insurance for these accounts is the most straightforward way to reduce risk, keep capital in our local communities, and fortify America's strong and diversified banking system. Thank you for the opportunity to testify.
▶ 0:24:54I look forward to your questions.
▶ 0:24:56Thank you, Mr. Run. Miss Castillia, you're now recognized for five minutes for your oral remarks.
▶ 0:25:01Chairman Hill, Ranking Member Waters, and members of the committee. Thank you for the opportunity to testify. My name is Jill Castillia, chairman, president, and CEO of Citizens Bank of Edmund in Oklahoma. I founded Roger, a digital military bank based on my experience as a prior service member, military spouse, and parent of two current service members.
▶ 0:25:21I also previously served on the Federal Reserve's Federal Advisory Council during 2022 to 2024, a period of severe market stress, which informs my perspective today. Citizens Bank of Edmond is recognized nationally as one of the most innovative, resilient community banks in the United States. We operate a single location with about $400 million in assets. We compete and win against institutions many times our size. We are one of only 15 womenowned banks in the country.
▶ 0:25:51My message is simple. The 2023 turmoil was a crisis of confidence, not a crisis of coverage. The failures of Silicon Valley Bank, Signature, and First Republic stemmed from concentrated uninsured deposits, poor liquidity and interest rate risk management, and a breakdown in communication with customers, not from FDIC limits. Customers left these banks because trust failed. Community banks that engage transparently kept deposit stable.
▶ 0:26:18Any policy decisions aimed at reforming deposit insurance coverage must take a holistic approach and not provide a gift to large regional banks. During the 2023 turmoil, following widespread news coverage of the independing independ impending collapse of Silicon Valley Bank, we called our customers before they called us.
▶ 0:26:36Within hours, we reached every depositor with uninsured balances and explained precisely how existing tools, reciprocal deposits, federal home loan bank letters of credits, and collateralization could fully protect their funds. We publicly shared our uninsured deposit ratio, liquidity, and capital strength, and invited direct contact with me. Customers stayed, and many brought new deposits because facts and transparency built and sustained confidence. Deposit insurance as designed works.
▶ 0:27:05For 90 years, no depositor has lost a penny of insured funds. The $250,000 limit already covers 99% of accounts, and my bank has roughly 90% of deposit balances fully insured. For larger needs, market tools extend protection without burdening the FDIC or taxpayers. Dramatically expanding coverage would create moral hazard, weaken market discipline, and distort competition.
▶ 0:27:29It would primarily benefit a small set of large regional and national institutions that hold the most uninsured balances, entrenching their advantages while spreading replenishment costs across the entire industry, including thousands of smaller, well-managed banks. Claims that such expansion targets small business are overstated. True small businesses already achieve full protection through existing limits and reciprocal networks.
▶ 0:27:52Infusing government subsidized liquidity into regional banks and large credit unions could further accelerate industry consolidation of community banks. Expanded coverage would also invite gaming. Shifting balances among account types or compensating depositors through side arrangements to qualify for guarantees, further eroding fairness and discipline. The cost of expanded coverage and its unintended consequences must be fully explored.
▶ 0:28:17There seems to be an imbalance of limited benefits with extreme cost exposure in nearly all avenues considered. By contrast, the current suite of market tools is effective and regulated. Collateralization, federal home loan better, federal homeland bank letters of credit and reciprocal deposits deliver full protection, same day liquidity and transparency while embedding guard rails that limit access by troubled institutions. Aligning safety with accountability rather than socializing risk.
▶ 0:28:46These approaches strengthen relationships and keep deposits local without expanding federal guarantees. Frankly, there are so many ways that we can help community banks, including enacting many of the bills that have passed in this committee rather than arbitrarily raising the deposit insurance limit. Real reform must focus on clarity, proportionality, and datadriven oversight that reflects how community banks operate. Tailor regulation cap and capital would improve safety and fairness without inflating guarantees.
▶ 0:29:15Any proposal to alter coverage must be accompanied by honest, transparent analyses of costs, beneficiaries, and risk. Bottom line, stability comes from responsibility, not blanket guarantees. Expanding deposit insurance to cover multi-million dollar accounts is a shortcut that creates moral hazard, rewards the largest beneficiaries, and penalizes the institutions that do things right. Confidence is built by communication, competence, integrity, the strengths community banks demonstrated in 2023 and every day on Main Street. Thank you.
▶ 0:29:45I look forward to your questions.
▶ 0:29:48Gentlemen yields back. Mr. Pharaoh, you're recognized for five minutes.
▶ 0:29:52Chairman Hill, Ranking Men, River Waters, and members of the committee, thank you for the invitation to testify on behalf of the Texas Bankers Association and the proposed two-step deposit insurance strategy. We appreciate that there are a number of deposit insurance reform proposals before Congress, including the ranking members bill and on the Senate side, the bill by Senators Hagerty and Also Brooks.
▶ 0:30:11We are not here today to oppose those bills, but to provide immediate protection of the banking system by allowing time to appropriately collect missing data and to evaluate the best approach to achieve overdue and permanent modernization. The risk and competitive structure of today's marketplace is dramatically different than it was when FDIC was created in 1933. Yet, the objective of providing depositor confidence remains critical.
▶ 0:30:35Looking back to 2023, the social mediadriven SVB bank failure nearly brought the banking system to its knees over a nerve-wracking weekend. It was quickly followed by the failure of Signature Bank. Yet across America, community and regional banks, through no fault of their own, were suddenly at risk from a deposit insurance system not up to the task. Depositors moved large sums of capital to institutions believed to be too big to fail, to government money market funds, and to other perceived safe havens.
▶ 0:31:02It was destabilizing and regulators scrambled to put facilities in place before the markets opened on Monday. Simply put, we got lucky. Current systemic risk processes are antiquated and vulnerable to contagion that can now run at digital speed and within a 24-hour news cycle. Deposit insurance must help prevent systemic risk first rather than first arguing over who pays when the system fails to stop it.
▶ 0:31:26With no firm consensus within industry or Congress, we strongly support a multistakeholder two-step process to provide immediate system protection while enabling data-driven and long-term reforms. The two-step plan is not just supported by the Texas bankers association. It is a collaborative approach backed by the Arkansas bankers, Colorado bankers, Kentucky bankers, Missouri bankers, Oklahoma and New Hampshire bankers.
▶ 0:31:49Together, these associations from middle and main street America represent over a thousand banks, nearly one quarter of FDIC insured institutions. Our first step, an emergency transaction account guarantee or EAG capability. Deposit insurance must be a prophylaxis against bank runs, not a reactionary facility with a confidence it can provide. Impacts to the deposit insurance fund can be prevented in the first place, which helps avoid expensive and always contentious assessments.
▶ 0:32:17Our EAG proposal would ensure that in a systemic emergency, depositors at banks of all sizes are protected, not just those at institutions deemed too big to fail. Our approach was designed to address the 2023 shortfalls that put the system on edge. This includes stopping contagion. The EAG proposal provides a 120-day period in which there is full coverage of transaction accounts at banks of all sizes, not just the largest.
▶ 0:32:42This will preserve confidence as the 120day period allows precipitating conditions to subside. The 120-day period also allows collection of a full postevent quarter of data to inform forward-looking decision-making by Congress, the administration, and regulators. Bureaucratic delay in the digital social media age. Our proposal would replace Fed FDIC processes that are far too bureaucratic when time is of the essence and depositor confidence confidence is at most risk.
▶ 0:33:11With notice to the FDI and Fed, our proposal enables the Treasury Secretary to invoke systemic risk authority to quickly implement the EAG program without delays. Moral hazard. The 120day period is for systemic emergencies and is by design temporary to avoid concerns related to moral hazard. And there are checks and balances in our EAG proposal as any extension beyond 120 days would require congressional approval.
▶ 0:33:38The EAG approach will ensure that the system helps prevent bank runs in contrast to 2023 when uncertainty caused too many community and midsize banks to experience deposit flight. Moreover, this proposal is fair across bank sizes and across all depositors. It does not pick winners and losers. Members, we've sustained two systemic emergencies in the last 5 years. This proactive uh is this proactive program is system preparedness.
▶ 0:34:06The mere fact FDIC would have this tool will will promote long-term confidence for depositors, investors, and the markets. With a tag back stop in place, we can then move to accomplish the second more complex and politically sensitive step to fully and fairly modernized deposit insurance. As you will see in my full statement, there's a list of important questions that remain unanswered beyond simply addressing assessment thresholds to include fixing the bank resolution process. One final comment, banks pay deposit insurance premiums. It is not a bailout.
▶ 0:34:37But in 2023, our community, midsize, and regional banks were stiffed when the government could not say if it would follow through to protect those that had paid deposit insurance premiums. That's unacceptable. Ultimately, we asked Congress to reconsider what constitutes a systemically important bank. All banks to include small, rural, urban, community banks, and the midsize banks that work with them are systemically important to the communities they serve. Mr.
▶ 0:35:03Chairman, thank you for the thoughtfully uh the thoughtful examination of this critical issue. We look forward to working with you to protect the system today and to comprehensively modernize uh deposit insurance for the future.
▶ 0:35:14Thank you very much. Mr. Norquist, you're recognized for five minutes.
▶ 0:35:18Yes, Chairman Hill, uh Ranking Member Waters, members of the uh committee, thank you for inviting me to testify today. Uh government should not pick winners and losers. Government should not tax some businesses and subsidize other, thereby creating winners and losers. And government should not be doing what the real economy, the market already does or can do better. Some observations.
▶ 0:35:43The Main Street uh depositor protection act will take money from some banks to subsidize the top 1% of accounts. 99% of deposit accounts are covered by the current $250,000 limits. raising it to $10 million was not worth [clears throat] the cost. Increasing premiums will be paid by the targeted banks to ensure a tiny minority of accounts.
▶ 0:36:06These account holders will be even more insulated from the consequences of bad decisions they may make uh that drag the whole system down. American banks already have the highest deposit insurance coverage in the world at $250,000. The government has failed to prevent bank failures through intervention and regulation. Silicon Valley Bank, First Republic, and Signature.
▶ 0:36:31Those failures in 23 were [clears throat] localized events that happened due to risky decision-making, and the regulators on the spot failed to follow through with Silicon Valley bank deposits having numerous red flags. None of the watchers were fired. Now, these failures should not be used as a pretext to give handouts to 1% of accounts. In the past 50 years, 90 banks with over a billion dollars in assets have failed despite the regulations and deposit insurance.
▶ 0:37:02As a result, many now expect to be bailed out and they may take risky risk risk make risky the decisions based on those assumptions. The savings and loan crisis of the 1980s saw hundreds of thrifts fail due to the natural the moral hazard created by raising deposit insurance in the n in 1980s deposition such deposition I'm sorry depositors did not care about placing their money at these institutions knowing
▶ 0:37:33that they were covered and neither did the banks. The SNL crisis was resolved through a multi-billion dollar taxpayer bailout. During the 2000 financial crisis, the FDIC's deposit insurance fund ran out of uh ran out of money anyway, and the depositors still had to bail out the banks. When we raised the number to promising the banks even more tax dollars if they lost everyone's money uh in the future.
▶ 0:38:02The Main Street Depositor Protection Act would slow growth and bifurcate the banking system. Every dollar spent on paying uh insurance premiums to the FDIC is a dollar not in the real economy. Increasing deposit insurance premiums reduces lending and increases borrowing costs, especially at smaller banks.
▶ 0:38:23We already have a uniform deposit insurance guarantee, largest in the world, carving out big and small banks, creating a bifurcated deposit insurance system and moral hazard by prompting deposit flight to midsize insurance institutions that enjoy the $10,000 guarantee. The government should not reward bad decisions by bailing out poorly managed banks and exposing taxpayers to the bailout liabilities.
▶ 0:38:50Instead, banks should supplement FDIC with private deposit insurance. There's private insurance in many industries in the United States. Uh, and this should be more available in the banking industry. Instead of putting the taxpayer on the hook, which is both a misuse of other people's money and shields banks from the consequences of their own bad decisions, Congress could should consider ex making it easier to opt into private insurance.
▶ 0:39:17Uh now, uh credit unions currently can only adopt a supplement to the FDIC insurance if a majority of members vote to do so, but can drop private insurance if any majority of any meeting agrees. Banks also should be allowed to meet their insurance or deposit minimums with private options in addition to FDIC. Private insurance can ease pressure on FDIC in crisis and create loss and cover losses that would otherwise get bailed out by the taxpayers.
▶ 0:39:47The $10 million accounts are the exact sort of depositors that can find and afford dep private insurance. If these accounts would like coverage, they should pay for it. Gentleman yields back. Mr. Anderson, you're recognized for five minutes. Chairman Hill, Ranking Member Waters, and distinguished members of the committee.
▶ 0:40:13I am honored to be with you today and thank you for the leadership you have shown in drawing attention to this important issue. Deposit insurance has long been a pillar of our financial system and is crucial to the resilience of the US economy. The events of recent years, including the collapse of several banks in the spring of 2023, have raised good questions about the need to modernize this framework.
▶ 0:40:37The legislative proposals being considered by the committee and in the Senate are promising efforts to enhance deposit insurance and related financial stability measures. I have three main points I'd like to emphasize in my remarks today.
▶ 0:40:51First, during the great financial crisis of 2008, the Treasury Department, FDIC, and Federal Reserve Board joint jointly announced the creation of the TAG program, which provided unlimited deposit insurance coverage for non-interestbearing transaction accounts at participating banks. The DoddFrank Act created a statutory version of the TAG program, but limited the FDIC's authority to create a similar widely available guarantee program in the future.
▶ 0:41:20Under current law, creating a tagline-like program would not just require an affirmative twothirds vote of the boards of the FDIC and the Federal Reserve. It would also require a joint resolution of Congress. Yet, as we saw in 2023, speed is of the essence during a financial panic, and regulators must act quickly and decisively to resolve failing banks, discouraged deposit runs, and limit contagion.
▶ 0:41:49Eliminating the congressional approval requirement would go a long way to restoring the potential for a tag-like program, as was done during the CO 19 pandemic to prove useful during future stress events. The ranking members bill includes a thoughtful approach to fix this problem. Second, inflation adjustment of the deposit insurance limit is a common sense reform that Congress should implement today.
▶ 0:42:17In 2005, Congress attempted to address the declining real value of deposit insurance by providing for inflation indexing of the deposit insurance limit with a passage of the federal deposit insurance reform act. Enabling future inflation adjustments is a sensible reform that would mitigate the declining value of deposit insurance.
▶ 0:42:40The discussion draft posted by the chairman, the the growing deposit insurance for the future act suggests such a legislative fix. Third, a major issue is whether to raise the deposit insurance limit for a narrow subset of transaction accounts for legal entities, not human beings. As a practical matter, this means small and medium-sized businesses, 501c3 nonprofits, and religious organizations.
▶ 0:43:09Uh, every policy choice has trade-offs and raising the limit would reduce incentives for some depositors to participate in bank runs, but it would also impose greater cost on banks. The form and the level of increased coverage should be equitable and grounded in empirical analysis based on expanded efforts by the FDIC to collect relevant data along with significant input from the banking industry and other One discussion draft noticed for this hearing does
▶ 0:43:40a good job of mandating a But a study for study's sake without a real commitment to empower the FDIC to gather research and make recommendations based on findings is an exercise of little value. The legislative proposals under consideration would make genuine advances. They would make our system safer. Congress should act now and not delay until the next emergency.
▶ 0:44:07The proposals before you have bipartisan support and contain complimentary features. I am encouraged by this body's commitment to bolster US financial stability and better arm our regulators with tools to defend against the foreseeable crisis of tomorrow. Thank you for the opportunity to testify on this critical subject and I welcome any questions from members of the committee.
▶ 0:44:31Thank you, Mr. Anderson. appreciate all of our panel's testimony. We'll now turn to member questions. I recognize myself for five minutes for questioning. In my view, it's essential that Congress take a datadriven approach. We've heard that from several of you today to evaluate any potential reforms to the deposit insurance framework.
▶ 0:44:49One challenge in evaluating proposals in taking the approach of raising coverage limits for certain accounts is the potential cost to the banks and the deposit insurance fund are uncertain as well as the amount of deposits that would be covered and how depositors and banks might respond to those high higher limits especially since deposits but shift to accounts with higher insurance limits.
▶ 0:45:14Another issue is that the FDIC call report lumps together individuals, business partnerships, and corporations when banks report transaction and non-transaction accounts and then further lump all of those together for reporting of insured versus uninsured deposits. So, there's ambiguity between interestbearing and non-interest bearing account classifications.
▶ 0:45:36Acting FDIC Chair Travis Hill referred to some of these data gaps in his recent nomination hearing and acknowledged as much back in July of 2024 after the agency issued a request for information on deposits when he said, "We need more information to differentiate among types of uninsured deposits and the FDIC should consider collecting more granular and frequent deposit data." This makes complete sense
▶ 0:46:07given that banks today do not report comprehensive data on the composition of insured and uninsured deposits in their regulatory call reports and that granularity of the data is collected is limited and somebody who spent most of my career in this business I couldn't agree more. Mrs. Castillia. Um, is that an accurate description from your point of view running your bank in in Edmund?
▶ 0:46:32Chair Chairman Hill, is it is an accurate reflection and the data is very difficult not only for you to be able to get from the call report, but core systems within banks, especially small banks, do not differentiate some of this information. For instance, for uninsured deposits, we have to manually calculate that information by looking at all of our two over 250,000 accounts, looking to see if there's co-owners on those accounts, beneficiaries, and so forth. Um, so it is difficult data to get.
▶ 0:47:01Um, and it is true for like uninsured deposits are not reported for small institutions. Um the data is um also knowing [clears throat] how the shifts will occur in accounts is very difficult to assess once you have a higher limit in a non-interest bearing account. It's very easy to offset that with reduction in interest in loans or higher rates on um larger interestbearing accounts.
▶ 0:47:26And I I had certainly in my banking career many many uh individuals who operated their very very successful small business essentially out of a personal checking account. They weren't incorporated. They were what we think of in in legal terms as a sole proprietor. And so they would they be covered or not covered in some of these proposals.
▶ 0:47:45It it's really difficult to assess because many businesses are doing it. They open the account as a person and then do business as this this account. Another I think you've raised the issue of your own internal systems, your own uh contracted software providers as well as the call report. Very helpful. I don't know what's going on with our sound here if somebody wants to deal with that. Uh Mr. Ryan, uh what percentage of your bank's depositors have uninsured balances above the current limit?
▶ 0:48:14And what's the typical balance these customers of your bank hold in a transaction account even if you'd use it as a range?
▶ 0:48:21Sure. uh approximately 30% of our balances are uninsured, which is uh slightly better than I think average for banks our size. Um and it's not uh it's very common to have uh accounts with, you know, multiple millions of dollars sitting in them. Think about universities and hospital systems who have large payrolls and uh lots of need to pay suppliers and things like that.
▶ 0:48:44Thank you. Um Miss Castillia, the same question to you. You run a $400 million community bank. Congratulations on being one of 12 womenowned banks in the country. That's terrific. And same question for you. How tell me how you look at uninsured deposits among your depositor base.
▶ 0:49:00Yeah. So we minimize our uninsured deposits. Um and we mirror also if we have uninsured deposits of 10% of our assets. We make sure we have on balance sheet liquidity to equal that amount. We maximize the use of reciprocal deposits primarily to be able to maximize coverage for our customers. And also as a trusted advisor in our our customers financial journey, whether they're a consumer or a business, we help them identify now with higher interest rates, a non-interest bearing account really isn't suitable for a business that's keeping large balances.
▶ 0:49:30So we'll set up sweep accounts so that the main the bulk of their balances are set in a interest bearing account and they sweep over as needed when they write those checks or they have payroll processing into the non-interest bearing account. We're also able to automatically sweep into reciprocal deposits to cover hundreds of millions of dollars.
▶ 0:49:46Thank you very much for everybody's testimony today. My time is expired and I now call on the ranking member of our full committee, Mrs. Waters, for five minutes of questions.
▶ 0:49:55Uh, thank you very much. Um, I have a question for Mr. Anderson. However, before I do that, I'd like to congratulate Miss Jill Castillo as president of a women's bank.
▶ 0:50:08It's good to see you here sitting among so many men uh who come here on every issue and particularly on banking issues and so I hope that you're with us as we move uh for the possibility of increasing deposit insurance and I hope women benefit from it. Having said that, Mr.
▶ 0:50:31In the aftermath of the failure of Silicon uh Valley Bank, Signature Bank, and First Republic Bank in 2023, the Biden administration took emergency action to protect uh depositors and prevent contagion, which I'm glad they Many businesses however got nervous about their payroll accounts being held by smaller banks and they moved their accounts to the mega banks thinking that they were too big to fail.
▶ 0:50:59A year later a much smaller bank in Oklahoma, First National Bank of Lindsley failed as well. But their failure was too small for regulators to use emergency tools to protect depositors. The failure resulted in small businesses, churches, and other customers with more than 250,000 to lose some of their money.
▶ 0:51:22According to the FDIC, it was the 37th time uninsured depositors lost money in a bank failure since 2007. To recap, small businesses that banked at SVB were protected while those that bank at this Oklahoma bank lost money. How is that fair?
▶ 0:51:42My bill HR450 the Employee Paycheck and Small Business Protection Act, would address this problem with a data-driven approach to expand deposit insurance in a deliberate way, considering the benefits and costs to ensure a higher threshold is set. So, community banks and credit unions can compete for small business uh deposits in their communities. and those businesses and their workers are better protected.
▶ 0:52:12So, I'm thankful Chairman Hill posted my bill for this hearing. And I note that the chairman posted several Republican bills on this topic that overlap a lot with mine. So, Mr. Anderson, based on your work with various banks and even payroll company uh during the 2023 regional bank crisis, how important is it for this committee to work together and not just study this issue but ensure action
▶ 0:52:43is taken to increase the deposit insurance threshold for business payment accounts. Ch uh Ranga member Waters, thank you for your question. Uh I think that your proposed bill uh HR4451 includes a lot of really valuable aspects, particularly uh the recommendation to uh reinstitute uh the TAG program without the need for congressional authorization.
▶ 0:53:14Um it's it's important to take some of the lessons learned from the 2023 banking stress and apply them considering that there's a significant amount of bipartisan support for legislation
▶ 0:53:29Uh thank you very much. You mentioned in your testimony that you absolutely supported my legislation. Um, and I'm wondering as we look at um, you know, the others here, um, would this also be good for women, um, bank, womenowned banks, or banks that, um, target and support women?
▶ 0:53:52Uh I think that the legislation that that you've proposed and and significantly uh the the tag provision um and the uh request for the FDIC to conduct a study uh to determine what a potential increase for non-interest bearing transaction account, what the coverage for for those accounts would be would be beneficial um uh not just to MDIs but to community banks and midsize banks and the system
▶ 0:54:23overall especially to the extent that it's equitable amongst amongst uh the industry.
▶ 0:54:29Well, I thank you for being here today and I yield back the balance of my time.
▶ 0:54:33Gentlewoman yields back. Chair recognizes the gentleman from Michigan, the vice chair of our full committee, Mr. Heiser. You recognize four or five
▶ 0:54:40Uh thank you, Chairman Hill. And uh last Congress, this committee, including my uh oversight and investigation subcommittee, spent a considerable amount of time on trying to find out the why of the failures of Silicon Valley Bank, Signature, and First Republic. While discussions over raising the deposit insurance uh did happen, uh as we received more information, a different narrative did begin to emerge.
▶ 0:55:06Our findings concluded which supported the findings of the FDIC's own report that SVB SVB's board of directors and their senior management ultimately made poor decisions and failed to mitigate risks. So then the question becomes if we are indeed going to raise the deposit insurance cap and I say this without trying to prejudge this um what problem are we trying to solve?
▶ 0:55:33What are the other potential solutions and what are those consequences seen and unseen? And Mr. Norquist, I'm going to start with you quickly. You mentioned in your testimony that 94% of all deposits at Silicon Valley Bank were uninsured, which included venture capital and tech funds, not to mention their A loans and a clients, which really all you have to do is read wineries in that.
▶ 0:55:56uh as someone who owns a small business and who has frankly been denied loans for equipment and for real estate projects because of a concentration of risk in our own industries. Uh I don't think this ever should have been allowed to happen. But of course because of FDIC's systemic risk exemption, the deposit the depositors felt no risk. So here is my question.
▶ 0:56:19What lessons should we draw from the failures of SBB Signature and First Republic with respect to uninsured It was certainly a failure of the regulators who red flagged it but nothing was done. Uh and the idea of bailing everybody out, even people who didn't have insurance, tells the world that you don't have to get private insurance. Uh and people will take care of you.
▶ 0:56:44allows people to take greater risks and be assured that somehow uh they will be bailed out and needs to be clear to people that there's FDIC which is now again the largest amount that's insured in the world is in the United States in terms of the dollar amount 250,000 now never mind 10 million um the other question is when we went to in the 80s that's when you ended up with a
▶ 0:57:15savings and loan. Increasing the FDIC did not reduce risks. It increased risks because people thought that banks
▶ 0:57:24the moral hazard question.
▶ 0:57:26Yeah. The moral hazard question. And it says we will we will nationalize. We'll we'll we'll share in any pain. Uh and I'll walk and I won't get I won't have to pay if things go bad. But if things if I have a risky bet and it does well, then I look really good. And if it fails, hey, somebody else is paying.
▶ 0:57:43All right. Thank you. I I need to move on quickly. Mr. Ryan, you're on the board of the American Bankers Association serving as its vice chair. I feel your pain as a vice chair. Uh ABA's current chairman [laughter] and fellow Michigander, uh Kenneth Kelly led a task force earlier this year which produced a series of final recommendations on deposit insurance modernization. I will note these were approved unanimously by the ABA's board of directors. Um and uh Mr. Chairman, with unanimous consent, I'd like to uh uh put the report in.
▶ 0:58:13Without objection.
▶ 0:58:14Uh thank you. And Mr. Ryan, could you please summarize quickly the ABA's views on deposit insurance reform?
▶ 0:58:19Sure. Um and uh I appreciate your vice chairmanship. Um but uh but there were a number of broadbased support. Um deposit insurance reform and and raising the limits was at the top of that list. Um including uh more information on that topic. Uh but there were a number of other actions including the emergency measures that have been discussed today. Improved transparency around systemic risk designations and special assessments.
▶ 0:58:44Uh the insurance uh um uh how we calibrate the fund and the stability to to do that. U deposit insurance assessments making them taxdeductible like any other insurance that banks pay today. So there are a number of resolutions uh included uh in its recommendations. Uh, but I think those are the big the big highlights.
▶ 0:59:04Okay. In my remaining time, I'm going to turn to Mrs. Castillia. Uh, as a community banker and frankly as a womanowned bank yourself, you just heard the ranking member cite this being a security for uh, womenowned banks. I saw a bit of a grin come across your face. Do you care to address that? And do you agree that community banks will not have to pay for this increase in deposit
▶ 0:59:26Thank you for that question. um this this bill if we went forward with non-interest bearing account insurance coverage skyrocketing for refold I don't believe I would have any benefit from this type of legislation I'm currently covering those customers with market available tools I may be able to save a little money depending on what the cost ended up being compared to the 12 and a half basis points I pay for reciprocal deposits the cost coming to community banks the proposal that I've seen has a 10-year transition
▶ 0:59:57period in which we would suddenly be supposedly be excluded, but the language says that it's just related to this particular account insurance coverage increase.
▶ 1:00:07Our time has expired. Mr. Chair, may I seek unanimous consent to uh submit a series of letters, American share insurance, American Action Reform, the Independent Bankers of Texas, Wall Street Journal, editorial board, and
▶ 1:00:19Without objection, those letters will be included in the record. And I I thank the gentleman woman from uh Oklahoma. Please continue your answer in writing to the vice chairman. It's now my pleasure to call on the gentleman from California, Mr. Sherman, who's our ranking member on our capital market subcommittee. You're recognized for 5 minutes. Uh couple preliminary comments. It's discussed why did Silicon Valley Bank go down and uh I believe one person said they made poor decisions. No, we have a poor system.
▶ 1:00:50They made decisions that were consistent with the profit motive of the officers and directors of Silicon Valley Bank. They lent long. They borrowed from their customers short. They realized they had a disproport a a mismatch and that if interest rates went up, they could lose a fortune.
▶ 1:01:14They bought insurance against that and then sold the insurance at a profit justifying bonuses to the very people who made the decision. If we do not require marktomarket of uh securities that are held, we will have a bad system and it will be in the interest of bank boards of directors and officers to make the same poor decisions.
▶ 1:01:38Um, as to the matter before us today, I want to commend the ranking member for her bill to say, "Let's study this." Uh, there has not been the AC the academic, but especially the government studies that I'd like to see.
▶ 1:01:55Um, couple years ago I thought and uh said that maybe we should increase to one or $2 million and maybe we should, but if we're going to go up to 10 uh or even consider up to 10, I commend the ranking member for her bill and let's uh let's see what the impacts are. Uh I'll point out that there are two ways that investors are made whole. One is FDIC insurance.
▶ 1:02:22The other some of us remember from 2008 is government bailout. Um Mr. Norquist, I want to thank you for your uh consistent if often mistaken uh dedication to your ideology. Um, we uh I think the only thing worse from your standpoint than FDIC insurance is government bailout because then the general taxpayers are paying and the people benefiting never even paid into any insurance system.
▶ 1:02:52We had before we're here talking about non-interestbearing transactions accounts uh mostly at banks but there's arrival and that's the stable coin also a non-interest bearing transaction account. We had a vote in this committee where I proposed we have a clear law, no bailouts for stable coin. Every Democrat voted yes. Every Republican voted no. Uh should we make it clear to stable coin investors uh that uh they're not going to get a government bailout?
▶ 1:03:23Well, I would certainly be in favor of bringing down the amount of [clears throat] available bailouts and the reasons for giving them. I certainly think that there are a lot of things in in my written testimony, I go through some of the private sector uh solutions that exist even in Massachusetts uh where I grew up before immigrating to the US um [laughter] real real success in having going back to 1934 having a private insurance.
▶ 1:03:51So when you've got the government so involved already with FDIC and going up to $100,000 didn't make things better, it made things worse. I would suggest we go other way and open alternatives.
▶ 1:04:05I I want to squeeze in uh one more item. One of the things about the proposed bill in the Senate is that every bank pays but the biggest banks don't benefit and that's the question is how will that affect us both on a sunny day and a deluge. On a sunny day I don't think that businesses are going to take their money out of Bank of America if that's the closest bank.
▶ 1:04:30uh I don't think this is going to be a system that moves capital from the biggest banks to the medium or smaller banks. But if there's a deluge then small companies that have a million or two million dollars in a big bank are going to come before the American people and say I did something reasonable. I had my money in the big bank. I need it to run my business. On the same day, the business owner across the street had his money in a smaller bank and is covered by FDIC insurance that my bank has been paying for.
▶ 1:05:00And with that kind of argument and having been here in 2008, I think the big bank accounts end up getting bailed out by the taxpayer. Um, is it reasonable, I'll ask Mr. for Ryan to have a situation not from the standpoint of the bank but the standpoint of the small business that if a small business has their money in a big bank uh they don't get FDIC
▶ 1:05:26The the deposit system and confidence in that system is critical to the success of the American economy and the numbers of small banks continue to decline. Uh and I think FDIC insurance modernization helps uh you know that uh decline uh from from slowing for sure.
▶ 1:05:43Thank you. Thank the gentleman from California. Now recognize the gentleman from Oklahoma, the chair of our monetary policy task force. Mr. Lucas, you're recognized for five minutes.
▶ 1:05:51Thank you, Mr. Chairman, and thank you to our witnesses for being here. And of course, I want to extend a particular welcome to my fellow Oklahoma and good friend, Mrs. Castillia. Today, our banking system is healthy, wealth capitalized. Our strength is in the diversity of our nation's banks in size, business model, and specialization. But when it comes to deposit insurance and failures, there is a difference in how the government treats banks of different sizes.
▶ 1:06:19We saw this most recently when the FDIC provided a backs stop for the systemic risk exception for the big banks that failed in the spring of 2023. But when a small bank in Oklahoma, which a number of my colleagues have alluded to, failed last year, that exception wasn't invoked.
▶ 1:06:36Depositors weren't made When people hear that their deposits may be safer in a larger institution because of that implicit guarantee by the government, our smaller banks are left at a competitive disadvantage.
▶ 1:06:53I want to focus my questions today on Secretary Basent's support, Treasury Secretary I should say, support for expanding deposit insurance to non-interest bearing transaction accounts as a part of President Trump's community banking and main street agenda. Importantly, acting FDIC Chair Travis Hill has testified that based on the FDIC's estimates, they would not need to raise assessments for this expanded coverage.
▶ 1:07:20Though not a silver bullet, this reform is a muchneeded improvement and could be part of a broad array of changes that must be made to strengthen our banking system. Mr. Ryan, the FDIC's report on deposit insurance reform after the large bank failures in March of 2023 says that increasing deposit insurance coverage to business payment accounts is the most promising option to improve financial stability.
▶ 1:07:49What are the benefits to financial stability and increased competition with expanded coverage for these types of accounts? is needs banks of all sizes and I think having a diverse and healthy banking system requires a lot of us and I think that's what's unique about the American banking system. So having uh increased deposit insurance limit I think reinforces the stability and the strength of this very diverse system we have today.
▶ 1:08:18Continuing with you Mr. Ryan, your testimony highlights the role small and midsize banks in play in access to capital for main street businesses. How would an expansion of insurance coverage for accounts that businesses use for their payroll and operating expenses affect local economies? What's the real net effect? Small and mid-size banks like Old National are closest to its customers and we are involved every single day. I wake up every single day and think about Evansville, Indiana.
▶ 1:08:48And I think uh there aren't any big banks in in Evansville, Indiana. So, I think it's important to have this big uh diverse group of banks serving local communities. Without local without banks in local communities, they're just not as strong.
▶ 1:09:02Mr. Ryan, are you concerned about an increase in moral hazard with a targeted reform approach? Picking winners and losers, I guess, is what people would say back home.
▶ 1:09:13Thank you for that question. I think that non-interest bearing accounts avoids this moral hazard question. It's not a moral hazard to protect small Mr. Ryan, [snorts] I've been on this committee a little while and I've been in this uh in this world for a little longer than that even. [clears throat] Uh there's some lessons that seem to be hard for us to learn occasionally.
▶ 1:09:37I think you would agree the most relevant lesson from the savings and loan debacle was when you take short-term deposits and make long-term obligations, you're exposing yourself. Correct, sir.
▶ 1:09:51And that's a fundamental flaw that we see used in other financial decisions and institutions to this day. I might add a representative um deposit insurance reform is no substitution for poor management. Uh you know poor management is is on those board of directors and that management team. This is no substitution.
▶ 1:10:16But deposit insurance reform in a contagion in a crisis mode can certainly slow down a crisis and give the FDI and other regulators more time to correct uh you know whatever systemic problems exist. I've been here long enough to know that when the wheels come off, when we slam into the wall, we will do amazing things that usually are incredibly expensive and sometimes destructive in a hurried Preparation is better than catastrophe management.
▶ 1:10:46Correct, sir.
▶ 1:10:46Correct. This is about an ounce of prevention versus trying to manage a crisis after the fact.
▶ 1:10:52I hope this is the first of several hearings on this subject matter. And with that, I yield back, Mr. Chair.
▶ 1:10:56Gentleman yields back. gentleman from New York, Mr. Meeks, the ranking member on our House Foreign Affairs Committee. You're recognized for five minutes.
▶ 1:11:02Thank you, Mr. Chairman. And I want to just jump in and first uh thank Miss Castila also. Uh I want to thank you for your service to our country. I want to thank you for sharing your story and that your testimony. Uh I thank you for that because it reflects your exemplary leadership uh within your institution and community, but it also embodies uh the qualities of community banks uh and it's something that they should represent and how they represent.
▶ 1:11:33So thank you uh for that. Uh and in your testimony, you mentioned that reciprocal deposit networks like um Intrai uh allow community banks to provide full insurance coverage for large depositors without requiring Congress to raise the FID FDIC uh insurance limits.
▶ 1:11:52And you also note that many community banks and I think this includes yours uh absorb the cost of these networks so that customers can receive expanded coverage seamlessly. You know, sort of businesses, community businesses, you know, they can be there and do do what they need to do. So, community banks, you already pay FDIC assessments to ensure deposit up to $250,000. Correct.
▶ 1:12:20And then you must pay additional fees to for private reciprocal networks to provide full coverage for larger depositors generally businesses in communities. Uh and so for smaller banks operating on thin margins those dual costs either squeeze your lending capacity. Is that correct? They squeeze your lending capacity or will they get passed on to customers? One or the other has to happen. Is that not correct?
▶ 1:12:50Sir, thank you for your question. Um, so we pay interest on these deposits. So the customer receives income from an interestbearing account and then we absorb the costs associated with that. So it's higher interest costs, but we're able to maintain a margin over 4% and I'm in a climate in a in a community where there's large banks, midsize banks, and community banks. And I can compete against them and win. And we do that the competition that we have. The way that we win is through trust.
▶ 1:13:16Just like you were outlining as to the efforts that we do and that other community banks do, we are able to have a competitive advantage because of trust. So, we're able to maintain a margin, pass along income to customers with those large balances and be able to deploy those into assets that serve our So the because what what you know always I looked at it you know this this is seems to be like a two-tier uh system and whether
▶ 1:13:47that is fair on community banks or not because I'm a big advocate for community banks to be able to do more in the community. This is both for urban and rural communities. Uh so this double paying uh does not seem to be fair to me on its face. Um but how would you answer that?
▶ 1:14:05So there's lots of things in business that aren't fair. But I will say that we are able to pay our customers interest versus being in a non-interest bearing account with insurance. So they're receiving that benefit. And through the work that we do with them, we're able to have stable deposits that we can deploy. Our deposits are up 26% since the failure of Silicon Valley Bank. I contribute excess liquidity of over $30 million daily to the rest of the system because we have our our deposits outpace our capital growth.
▶ 1:14:35Um so I do not feel disadvantaged. Sir,
▶ 1:14:38thank you. This is why I think this is a very important hearing because uh I think we could get something bipartisan done here working together with uh the chairman and the ranking member. Uh let me jump to Mr.
▶ 1:14:51Johnson real quick because again on the uh community banks uh they often depend on the federal home loan banks for affordable liquidity and so how can policymakers reinforce the partnership between the FDIC and the federal home loan banks so that both systems work together to safeguard
▶ 1:15:12Uh thank you for your question Congressman um and it's good to see you. I I think that any material reforms to the FDIC deposit insurance framework as well as uh the resolution and and receiverhip uh process should be done and and taken with the perspective of other emergency uh emergency lending um and liquidity tools in addition to the federal home loan banks as well as the the discount window which
▶ 1:15:43uh Senator Warner has proposed a bill to make uh reform for and to ensure appropriate discount.
▶ 1:15:50Let let me just try to get one more question in real quick because uh share your thoughts on the critical how critical CDFI fund and investments are in MD in MDIS for supporting growth in rural and underserved communities.
▶ 1:16:06You should answer that question in writing, [laughter]
▶ 1:16:09but it's a good question and I thank the gentleman from New York. I now yield to my friend from Texas, Mr. sessions, you're recognized for five minutes.
▶ 1:16:18Mr. Chairman, thank you very much. Uh my thanks to the panel also. I think all five of you represent uh marketplace answers and ideas and I appreciate it. Uh I am more along the line of the prior two speakers who have spoken I think that Mr. Ryan and and certainly Mr. Furlow have spoken to. I have great respect and do agree with Mr. Norquist on government bailouts and where that happens.
▶ 1:16:44But I happen to believe that we have some bit of a problem with the and its effect that we should look at. And perhaps this goes more to uh Mr. Furlow's conversation and certainly Mr. Ryan's discussion about what are we really after and uh certainly Miss openly said we need banks of all sizes.
▶ 1:17:12But there is a dominant effect I believe against smaller and community banks and I think the the the deck is stacked against them. We brought up SVB today uh and the impact of that and who the winners were, who the losers were. I began dealing with Mr.
▶ 1:17:30furlow uh at the time of that about what might be concrete answers and and it it's hard in this place to get so many people on one side or agree with the other [snorts] but I believe that we have yet to talk about the role of uh regulators and their responsibility in this also I think we have failed to talk about a number of things at banks community banks smaller banks that in involve criminal criminals
▶ 1:18:00and assaults against their their u accounts, financial institutions notwithstanding banks. And I think that Bill Heisenga has done a good look, good view, proper view of his oversight of the regulators and that balance.
▶ 1:18:19But I will tell you that I think we've got to aim at a philosophy about how we're going to level a playing field to make sure that community and smaller banks not just compete fairly. And I know Miss Castillo said, "Oh, they can compete. Not a problem." But I think that when it really comes down to it, in particular, when there is a problem, they lose.
▶ 1:18:44when there is something in the marketplace that happens whether VSBB or other things I think by and large we lose community banks I think people move their money now much of it could be because I live in central Texas and that's what I hear I hear people from Waco to Nacodocious to Lufkin and they have varying needs and varying desires but I think we've got to get to what the structure is that we're trying to get at and get a better understanding Uh, and
▶ 1:19:14I think that that's what this event is about today. I think the hearing is to hear how somebody in Oklahoma really did a great job with with the debacle from SVB and then look at the the facts about some others. So, I am looking for an answer. I'm looking for a healthier and which we have a healthy financial system for everyone, big banks, everyone in the country.
▶ 1:19:41But I think that we've got to go more to a structure, and I've used that word now three times, a structure that we understand what we're trying to get out of the end result. Regulators, the uh money, whether it's $250,000 or whether when when there is a problem, how we're going to resolve that and who pays. Uh Mr.
▶ 1:20:06Furlow, help me out with my thinking because I I think that I've been coached well and but it's my philosophy to understand this from a a a philosophical perspective. Help me out
▶ 1:20:20Well, Congressman, thank you for the question. I I I think just the range of issues that we've talked about related to deposit insurance today points out that this is a complex issue. It's a complex matter. It is not going to be easy to fix. And that's why the Texas Bankers Association along with six of our colleague associations uh from from Middle America are proposing this two-step approach to deposit insurance reform.
▶ 1:20:43The first is to make sure that we quickly have an emergency tag capability in place in case there is another systemic emergency. Um it's easy to forget that we've had two systemic crises in five years. What will be the next thing that happens? We we just don't know.
▶ 1:21:00And so we need to have an emergency tag capability in place while we quickly and I want to emphasize quickly move to the modernization side and have these open discussions about so many of the questions that remain whether it be on what the threshold should be um how we handle bank resolution. Um again that's why we're promoting a two-step process.
▶ 1:21:22Thank you. One one more second please Mr. chairman and I believe we should learn from the past and regulators have a responsibility to come and aim at system systemic problems or issues as opposed to really many ancillary things that they get involved in for three weeks at a time. Thank you, Mr. Chairman. I yel
▶ 1:21:41Thank you, Mr. Ver. Call on the gentleman, great gentleman from Georgia, Mr. Scott, you're recognized for five
▶ 1:21:47Thank you.
▶ 1:21:49Uh Miss Castile, welcome. I want to ask you about the moral hazard and the impact of raising the deposit insurance cap from 250,000 to 10 million.
▶ 1:22:08And [snorts] my understanding is that none of the proposals for expanded coverage would relax bank supervision and regulation to guard against excessive risk takingaking.
▶ 1:22:24But here are my concerns which uh involves blurring the lines between insured deposits and private capital signaling that all liabilities are implicitly backed by us in the federal government.
▶ 1:22:47And in your recent uh op-ed, you say that this type of behavior can destroy competition and weaken the very that deposit insurance is meant to So my first question to you is can you share which specific categories of bank risk, liquidity, concentration,
▶ 1:23:18credit would be the most sensitive to a higher guarantee?
▶ 1:23:25Thank you sir for that question. I I love this question because the moral hazard can be quite complex. Um what right now the current market tools that allow for insurance coverage for individuals beyond the $250,000 limit, it has restrictions, regulatory restrictions from allowing troubled institutions to increase their exposure to the fund. So four or five rated banks, those that are troubled condition cannot participate further.
▶ 1:23:53They're frozen in their activities with the Federal Home Loan Bank and reciprocal deposits. If you increase deposit insurance, there is not that restriction within the federal than within the FDIC. They they would have an up to that limit and they could bring other customers on. They could compete in the marketplace offering higher rates or better toasters and take customers from well-managed community banks be because they need the liquidity and you could have a failing institution increase its exposure to the fund.
▶ 1:24:23And uh let me also ask you, are there any targeted coverage categories where moral hazard concerns are lower?
▶ 1:24:35It's it's a great question and it would require more research and and analysis on that. I I don't feel like I have the expertise to potentially cover that. You know, I don't like the idea of inviting complacency or allowing management, uninsured creditors or shareholders to offload risk onto the public safety net.
▶ 1:25:02So, [snorts] but would enhanced oversight of interest rate risk or concentration risk reduce the behavior incentives created by higher coverage.
▶ 1:25:18Sir, frankly, the current supervisory framework should catch this mismatch of interest rate um that that we saw at Silicon Valley Bank and other banks. I could not get away with this behavior. We have our interest rate risk is analyzed every 18 months and even if they see a call report that that falls a skew in some way I'm getting a call sir.
▶ 1:25:38Now Mr. Anderson Uh in the 1980s, the US experienced a wave of bank failures that resulted in over 700 bank closures and costing the economy 300 billion in $25.
▶ 1:26:02So my question to you is do you see these proposals having a similar impact and could we be increasing risk to financial stability?
▶ 1:26:17Uh I think that the proposals before the committee today taken collectively actually uh are a net positive in reducing financial stability risk to the system. There are a lot of valuable uh components particularly uh instituting a tagline program and inflation adjustment for the deposit insurance limit that are uh reasonable sensible solutions to help enhance financial stability.
▶ 1:26:47So you're not worried about anything in this area, are you? not not anything that keeps me up at night. I I I actually am am very much encouraged by uh the bipartisanship wi within this committee and uh some of the reforms that are on the table.
▶ 1:27:06Thank Thank you very much.
▶ 1:27:07Thank you.
▶ 1:27:07Thank you, Mr. Scott, very much.
▶ 1:27:10The chair recognizes the gentleoman [clears throat] from Missouri, the chair of our capital market subcommittee, Miss Wagner, you're recognized for five
▶ 1:27:16I uh thank you, Mr. Chairman. My home state of Missouri has a huge variety of banks ranging from community and regional banks all the way up to globally systemically important banks or GIBs. As of last year, in fact, Missouri had the fourth highest number of state chartered banks in the United States. Missouri represents what makes our banking system great.
▶ 1:27:45These varied institutions can address the different needs of our community. From a young married couple buying their very first home to the entrepreneur who needs a loan to to grow a startup. This variety is unique and one of our economy's biggest strengths.
▶ 1:28:05Any changes to our deposit insurance framework should ensure that the variety and the diversity of our banking system is preserved so that all customers can access banking that suits their needs and any negative impacts are minimized. Mr. Norquist, it's good to see you again, sir.
▶ 1:28:26What potential pitfalls or moral hazards and market distortions can be created if deposit insurance coverage limits are raised and conditioned on a bank's size.
▶ 1:28:44Oops. Well, you might see people moving their hundred bill, you know, their hundred million dollars into 10 smaller banks where they're each covered. So you have some movement of capital perhaps chasing after um government insurance uh support. Uh I think there's a challenge when you take money from one part of an industry and hand it to another part of the same industry. That's picking winners and losers or creating winners and losers right there.
▶ 1:29:13uh and that we should take a look at what happened in the 80s when we did for all the reasons that we're hearing here. We extended we the government uh increased um the coverage to 100,000 uh from 40,000 and we ended up with massive uh misallocation of resources and a lot of bankruptcies beyond what the insurance would cover.
▶ 1:29:36largely created by the government deciding that everything was going almost everything was going to be covered and people made decisions thinking that if they lost the money that everything would be okay so they were much more risky.
▶ 1:29:49Thank you Mr. uh Norquist. Mr. Furlow. In your testimony, you mentioned the transaction account guarantee or the TAG program, a temporary program established by the FDIC in 2008 to provide unlimited deposit insurance on non-interestbearing transaction accounts at all banks.
▶ 1:30:08Several groups, including the Missouri Bankers Association, have recommended providing regulatory uh regulators with the authority to establish a TAG program as a first step towards a more comprehensive restructuring of our deposit insurance system. Can you compare the effects on the banking sector and depositors behavior of the following policies?
▶ 1:30:31the current systemic risk exception, the TAG program, and the permanent increases to deposit insurance
▶ 1:30:40Yes, ma'am. Thank you for the question. I think um it really gets to the heart of why we're proposing a two-step uh approach, and we're grateful for the Missouri bankers being being a part of this this coalition. And really what we're trying to get to the heart of is how do we bring fairness for all banks to include our community and midsize banks. I I look in the in in the community for example in Kitty Quay Texas First National Bank in Kitty Quay Texas is systemically important in that community to a producers in particular
▶ 1:31:10and yet during the last crisis um that bank didn't didn't know if their depositors were going to be covered. And so making sure that we have in place immediately the ability in case we have a systemic crisis between now and when we figure out all of these other factors that we're discussing today is terribly
▶ 1:31:30Thank you very much, Mr. Furlow. Miss uh Mrs. Castillia, as I mentioned earlier, we have a wide variety of banks in Missouri, including many community banks like your own. How would proposals to change deposit insurance limits affect those different sized banks?
▶ 1:31:47And and I thank you for that question. The show me state is I'm going to use that moniker and that you know I think we need a show beyond the data and do a really in-depth analysis to see how each of these size in institutions will be affected.
▶ 1:32:01I think the assumption right now is that there was a large increase in deposit insurance that you potentially could see a flowback of funds to large midsize banks from small institutions and the largest institutions because during the SVB crisis since then small bank funding has remained consistent and so we did we were with the receivers and also kind of the losers together with a net net zero.
▶ 1:32:24Thank you. Thank you Mia. My time has uh expired. Mr. Brian have questions for you but I will put them in writing. Thank you so much Mr. Chairman. Senator yel back.
▶ 1:32:31Thank the gentleman from Missouri. We now recognize the gentleman from Massachusetts, Mr. Lynch, who's our ranking member of the digital assets, financial technology, and artificial intelligence subcommittee. Thank you.
▶ 1:32:41Thank you, Mr. Chairman, and I want to thank all the witnesses for your testimony this morning. Uh I just want to add to Mr. Sherman's uh remarks around uh the failure of Silicon Valley Bank. They also did not have a chief risk officer in place for the eight-month period before their collapse. That that might have helped. Uh you know since the mid 1980s the number of commercial banks in this country has uh declined by about 70%.
▶ 1:33:10With consolidation mostly occurring um in relation to the largest financial institutions in the country. Uh this trend again accelerated in 2008 as we all know.
▶ 1:33:23uh and uh dur during the 2008 financial crisis and most recently the collapse of the banks that we're talking about this morning, First Republic, Silicon Valley Bank and Signature Bank, which were the second, third, and fourth largest bank failures in US history, resulted in JP Morgan Chase actually growing uh by 173 billion in deposits and 229 billion in loans following their acquisition.
▶ 1:33:53ition of of first republic. Uh in the wake of these failures, our committee uh Democrats and Republicans have continued to evaluate long overdue reforms not only to prevent the failures in the first place, but also to look at the resolution process and I I know uh Mr. Furllo and others have mentioned that uh that that aspect of this.
▶ 1:34:15Uh to this end, Chairman and Hill and Ranking member Waters were kind enough to attach my bill uh called the Failing Bank Acquisition Fairness Act, which would ensure that smaller and midsize and regional banks would have a shot uh when a bank fails instead of, you know, rushing to to uh push those deposits and and and loan activity to another mega bank or or GIB.
▶ 1:34:43and uh just like to get Mr. Mr. Anderson if you could uh talk about the view uh of of offering midsize regional banks and I'm going to ask Mr. Ryan to comment afterwards as well. He's got a good perspective there from Evston and also you know all over the Midwest.
▶ 1:35:03uh what would that mean if we actually allowed strong midsize and regional banks to to take over some of these failing banks instead of you know making JP Morgan Chase even larger.
▶ 1:35:17Uh Congressman, thank you very much for your question. Uh I generally support the principle that Congress should preserve uh the policy already in our laws which uh limits the largest banks um to 10% of total deposits in the US and not
▶ 1:35:33so we've got an emergency clause there for for failing banks. So it doesn't apply that's what I'm okay
▶ 1:35:38in in a crisis scenario. Yeah. Uh I I I think consistent with some of the recommendations from the ABA white paper which has been submitted to to the record, having the opportunity for community banks and and midsize regional banks to participate in bank failures is probably a pretty good idea. Uh that is going to be limited by the complexity of the failed institution and the size of the institution and the assets that it holds. So
▶ 1:36:03and time is of the essence. I I I do agree with you. I just want to go to Mr. Ryan, I'll let him have a a couple of words on this.
▶ 1:36:10I'm sure the committee knows this, but midsize and community banks regularly lend out 75 to 80% of its deposit base. The largest banks in our country only lend out 55% of their deposit base. So, having more small and community banks and mid-size banks creates more lending opportunities and more economic development in our communities.
▶ 1:36:29Thank you. One other one other issue. Last [clears throat] week, uh Michelle Bowman, she's the vice chair for supervision at the Federal Reserve Bank, uh spoke at a uh a a banking conference in uh in Madrid. Santandere, I guess, ran that. But she she advocated that it is critically important that traditional banks are able to engage fully in the digital asset space and compete, these are traditional banks, and compete with non-bank financial institutions by integrating cryptocurrency.
▶ 1:37:00that would seem to blow up all of the all of the risk control, all of the all of the protections that we we put around banks and and uh I'm just wondering that that seems to be a crazy idea uh in in my opinion thinking about what we're talking about here, you know, uh deposit insurance to import the most volatile and risky of assets, speculative assets. And uh I don't know, Mr. Ryan, you got some thoughts on that?
▶ 1:37:29Well, I do think we need to tread cautiously when we're talking about fintech companies who operate a lot like banks or we're talking about stable coin entities and Bitcoin companies and things like that. I think we need to tread lightly uh particularly around any government implied or explicit guarantees.
▶ 1:37:44Okay. Thank you, Mr. Chairman. I appreciate the courtesy and I yield back the balance of my time.
▶ 1:37:48Gentleman yields back. It's pleasure to recognize the chair of our financial institutions subcommittee, the gentleman from Kentucky, Mr. Bar. You're recognized for five minutes.
▶ 1:37:55Thank you, Mr. chairman and thanks to all of our witnesses for your insightful testimony. Uh what we're talking about here today are policy alternatives and there's trade-offs and so uh thanks for helping ush get to this. I want to scrutinize two topics. One, the Hagerty also Brooks legislation and the potential cost of that and secondly this E tag concept. Um Mr. Ryan, uh thanks for Old Nationals presence in Kentucky in the Commonwealth and the contributions to economic activity uh especially in in Henderson and and in Lexington as well.
▶ 1:38:24Um, I I do applaud your efforts to try to protect those midsize institutions like your own, but I I am concerned about uh the Hagerty Also Brooks uh cost. Let me ask U Mrs. Castillia to to to to amplify this idea that the effect of increases in deposit insurance on premiums uh that institutions pay and and will these costs be borne by the institutions themselves or customers as you said in the form of lower interest paid on deposits,
▶ 1:38:55higher interest paid on loans and other increases in fees?
▶ 1:38:59Thank you for the question. Um, so I I look at this bill as being more of a buy now pay later um type of scenario where we have we don't really know the cost. Um, we're utilizing already paid in assessments to subsidize some of these costs with an exception stated for community banks but still using these assessments that we've already contributed to subsidize the cost of this legislation.
▶ 1:39:23And Miss M. Ryan, can I go back to you? I want to give you a shot here. Um because um you know uh Miss Castillia's testimony is that the lesson of 2023 is not the 250,000 limit is too low. Confidence doesn't come from insuring every dollar. Why couldn't old national or banks of your size uh use as Miss Castillia argues collateralized deposits, federal home loan bank letters of credit uh reciprocal deposits as amplified by our legislation?
▶ 1:39:52Why is it that Hagerty is uh the the the only answer here?
▶ 1:39:58We certainly use all those tools. However, I would suggest to you that during times of crisis, they're very complex. They're expensive to administer and our businesses quite frankly would prefer to stick to FDIC insurance.
▶ 1:40:10Um I understand that. Um let me just ask one one final question about the Hagerty Alterbrooks proposal. The proposal would have the FDIC spread its recognition of insured deposits over a 10-year period in order to get the reserve ratio. Um, Mr. Norquist, does increasing insurance coverage uh 40 times what it is today, uh, but not really paying for it except for over a decade. Does that make sense to you? Not particularly.
▶ 1:40:38Um, let me move on to tag. I I want to as an alternative to this Hagerty also Brookbrooks idea, I want to enter into the record um Mr. Chairman a letter from the Kentucky bankers association and some of the other state banks associations uh advocating for an EAG.
▶ 1:40:54Without objection,
▶ 1:40:55um why um Mr. uh uh Furlow, why um is the systemic risk exemption inferior to EAG? I mean, wasn't the failure of SVB and the deposit outflows that we saw as a result of that the result of regulatory delay and indecision over that fateful weekend as opposed to the absence of an E tag? That absolutely was was part of it. I mean, y'all remember that weekend.
▶ 1:41:23Everyone was scrambling both on the industry and regulator side to understand what was going on and what was going to happen before Monday morning. And so the reason that we're proposing this E tag proposal is to ensure that there's something in place that can quickly be implemented especially in the social media age when contagion can happen.
▶ 1:41:41Well, I guess my question is isn't the problem the regulators failure to to execute the systemic risk ex exception? Wasn't that the issue as opposed to the absence of EAG?
▶ 1:41:53That is certainly a part of it. Um
▶ 1:41:56well ju just in general, Mr. Furlow. Can you tell us why you believe that the EAG program would be preferable compared to uh across the board blanket increases in deposit insurance limits and whether it would be a cost saver in the long run compared to FDIC resolutions of failed
▶ 1:42:14Well, sometimes I think we forget what deposit insurance is there for. It's first and foremost to prevent bank runs. I think we focused a lot on what happens after the bank runs, who pays, who's going to pay what. the the first goal should be to stop bank runs from beginning at the first place.
▶ 1:42:31And so with our proposal, if we have a program that is set to be uh utilized at a moment's notice when we see contagion starting, then we can quickly say to depositors, regardless of the type and size of bank that they're at, you're
▶ 1:42:46Finally, Mr. Mr. Ryan, why isn't EAG superior to the costly increase in deposit insurance?
▶ 1:42:52Deposit insurance reform is about prevention. Uh, E tag is about cleaning up a crisis afterwards.
▶ 1:42:59Uh, thank you. I yield back.
▶ 1:43:01Gentlemen yields back. Now recognize the ranking member for the subcommittee on financial institutions, Dr. Foster, Illinois. You're recognized for five
▶ 1:43:09Uh, thank you, Mr. Chair, and thank you to our witnesses for very thoughtful testimony. Um, um, you know, we it's it's important that we not only look at the past, but also look as best we can into the future and what we're going to be dealing with in the future. It's not going to be customers or or businesses. It's going to be their AI agents. All right? And when you're talking about bank runs, you're going to be talking about bank runs that don't occur at the speed of social media, but at the speed of agentic AI. All right?
▶ 1:43:37And I I'm confident we're not ready for that. Um, you know, Miss Castillia, you described in during the 2023 bank stress getting your customers on the phone to reassure them. And uh, that was only possible because we had hours or days at most to to actually do that. But if this had been happening at the speed of Agentic AI, which I'm afraid they will be programmed to their prime directive will be to keep your money safe.
▶ 1:44:04And secondly, maybe do some trustbased, you know, long-term relationship stuff, but I don't think that will be emphasized for most people. And so, you're going to have a situation where the the agents that are making the decisions in real time are not going to have the customer loyalty that that the our whole banking system depends on. Um, so I was just wondering has this um actually Mr.
▶ 1:44:28Furlow, you you've talked a lot about this and about your first step is at least make sure we're safe against this sort of um you know what what's the current thinking? Does someone have a system that that pencils out reasonably that would actually protect us from an AIdriven bank run where everyone's agents read some, you know, rumor on Reddit that this bank may be in trouble and they're not sure. They don't have time to check it out, but their first responsibility is to get your money the heck out of any bank that might be in
▶ 1:44:57Well, first I I would say that respectfully disagree with my friend Mr. Ryan that E E TAG is responsive. It's preparedness. it's putting in place whether it is an AI uh generated type of crisis whether it's geopolitical in nature whether it's social in nature uh whatever that crisis is we're prepared to act quickly in order to protect banks of every size which is not the status of where we are today our community banks our midsize our regional banks are very
▶ 1:45:27vulnerable to shocks and 2023 proved it and it happened extremely fast and when the age of AI it's going to happen even faster. And so once that is recognized, when contagion is seen, what we need is a quarterback. We need someone who has the ball to be able to say it. We need to invoke this authority to protect banks of every size to stop the runs before they start. That will help to protect the diff.
▶ 1:45:52We're also, I think, going to need real- time data collection, you know, all the way down to even the smallest banks. Uh yeah, Miss Castillia, you also described how you had to manually calculate what fraction of your deposits were uninsured. That seems like it shouldn't happen even for a small bank. You should have a dashboard that gives you in real time all of the relevant numbers and frankly report those numbers in real time up to the regulators so they have the information they know. You know, the technology exists to do this.
▶ 1:46:21I'm sure all the big banks have the equivalent of that and the regulators I'm sure have real time uh visibility into this. The cost of this software is going to get massively cheaper with AI generated software frankly. And so I think one of the things we may want to think about is trying to make it possible for even the smallest banks to have the highest quality software so that the banks themselves uh you know without having to go and and break the bank paying for it have a way to get industrial strength uh software that will lower
▶ 1:46:51the cost of compliance and make the regulators job a lot easier because they won't have to worry about collecting data. um has any one I just go down the line here. You know, what was who were the thought leaders on that? Who who was assembling such a system and thinking about how it can work? Um and Mr. Anderson, you look like you want to say something.
▶ 1:47:13That that's a really good question. Uh Congressman, I I don't have a a great answer for you on the spot, but happy to get back to you about who who the thought leaders are on on designing that
▶ 1:47:24Um sir, I don't have a comment on the thought leaders. I will get back to you on that. But I do want to say that uh we have just our bank uh more than 75% of offbalance sheet collateral sources that we could draw upon if there was a way to integrate that real time.
▶ 1:47:39And I think a deficiency we have right now in that type of situation that you described is that we only can access the Federal Reserve and the discount window during business hours and it's through the wire system versus using Fed now or something comparable where we had real time 247 access to those those collateral
▶ 1:47:57right? And then you're going to have to preposition those collateral in a way that the Fed has confidence that they can give it an appropriate haircut and give you the emergency, you know, in the next 20 minutes to stop this bank run. And sir, we we test our contingency funding processes at least on a monthly [clears throat] basis. So they're ready to go.
▶ 1:48:13Yeah. Well, it's got to be real time, unfortunately. And that that's, you know, I don't think it's it will end up being exorbitantly expensive. We just have to find a way to not have those costs land on the small banks in a way that they just can't afford. And if if there's any thoughts on how to best, you know, frankly subsidize better software for small banks, I think is the is the ultimate going to have to be the ultimate goal here or else you're always going to have a flight to the large banks when this happens.
▶ 1:48:42Um, is this a job for I don't know the Federal Reserve to convene a workshop on this to actually un to write down a system that actually can survive against an AI
▶ 1:48:52And there's several community banking workshops in which we share best practices where this could be pertinent. We do although I said we we calculate this manually, we have a system internally where daily we can see what our uninsured deposits are. So community banks are scrappy. It just may not be a fancy software system. It may be in Excel and then we're importing that data from a query, but we're monitoring it on a daily basis.
▶ 1:49:14But but your regulators in this kind of run are going to have to know in real time how widespread a problem. Anyway, my time is up, but I I welcome any thoughts you had on on the way forward on this growing problem.
▶ 1:49:25Yes, sir.
▶ 1:49:26Yield back.
▶ 1:49:27Thank the gentleman from Illinois. We now recognize uh Mr. Laudermel, gentleman from Georgia. You're recognized for five minutes.
▶ 1:49:34All right. Thank you, Mr. Chairman. It's good to be back. I'm reorienting myself to how all this works again. So, we had a little break there. But, Miss Castillia, um, in your testimony, you wrote that the, uh, 2023, uh, events were fundamentally a crisis of confidence, uh, not a shortfall of coverage. I tend to agree with you on that.
▶ 1:49:54Um, but in your view, how does datadriven reform address this confidence of shortfall of the current deposit insurance framework in a way that simply raising the deposit insurance coverage threshold cannot?
▶ 1:50:06Well, certainly when we go back and look at those bank failures, the supervisory oversight was inconsistent with what community banks face on a daily basis with our regulators. And so to be able to say if you have 95% or 94% uninsured deposits, you better have a lot of onbalance sheet liquidity to handle liquidity crisis. the data is going to be difficult to get. I think you know call report data is more limited when it comes to deposits even for large institutions that report more frequently and more detailed information. But I do think that some of this is imperative going forward.
▶ 1:50:36So how do you think that banks themselves can help ensure confidence for their depositors?
▶ 1:50:41I mean trust is what banking that's what we do. That's what community banks do. Do I don't want that the government taking the place of the trust that I get to build in customers. That's what that's what makes community banking so
▶ 1:50:54All right. Thank you, Mr. Norquist. Good to see you again. Um, even though the additional FDIC coverage would be funded by industry premiums into the diff, uh, do you have any concerns about costs being passed down to consumers or the American taxpayer? Well, when you have in effect a tax on the business that says you have to give us this for the insurance because we'll tell you what you get for the money. It's not it's not a voluntary decision by a bank to pay the additional
▶ 1:51:25money. And as I understand it, some banks will be paying in to subsidize other banks. So it it looks a lot more like a tax even than a manm mandated fee or behavior. uh those things tend to be problematic. You're subsidizing some people at other people's expense. And when you take money out of a bank for insurance or any other purpose, it's not available for other things.
▶ 1:51:51So at the end of the day, where else does the bank get money other than its customers? It's like taxes, you know, the property taxes on your grocery store are not paid, you know, by the potatoes. They're they're they're paid by people who buy potatoes. Right. Okay. Miss Castillia, if I come back a followup on that. Um, as community banker, is that something that would have to be passed along to your customers and increased fees, etc.?
▶ 1:52:20We would just have to figure out how to um to navigate around that. You know, community banks have tons of technology pressures. Um, we we have to provide the same thing the big banks do. So, something would have to give, but we'd have to be scrappy and figure it out. But ultimately, I mean, the customer probably would either either have deficient service in some capacity from a technology standpoint, accessibility services, or potentially cost and what we were able to to be able to pay them for for,
▶ 1:52:45right? And and generally customers end up paying all the fees. Now, let me take this a step further because in the past few years, our friends on the other side of the aisle here have waged war on bank fees. They want to get rid of bank fees or at least significantly curtail them. So, if that was to happen, and I'll open this up to anybody on the panel, to where now bank fees are not allowed or or you're not allowed to raise bank fees, what do you do then, especially for small banks?
▶ 1:53:15It's it's an impossible question and keeps getting more difficult to answer. So, if you have or anybody else in the room has that, I'm all ears because it is becoming more cost burdensome. And even though I said that we have a net interest margins over 4%, it used to be our non-interest expense was covered by our non-interest income. Now there's no way that that non-interest income covers non-interest expense and the banks profitability then continues to tighten.
▶ 1:53:38Does anybody else like to take a shot at
▶ 1:53:41Yes sir. One of the challenges especially for our community banks is just the stack of expenses that they're constantly facing. And an issue I'd like to raise u because it fits into all of the cost is fraud. Fraud is a huge problem, especially for community banks. And guess what happens? Oftentimes, those banks are making the customer whole.
▶ 1:53:59And so, um, it's it's easy to attack attack the fees, but it's our community banks who if there's a card skimmer that that's involved or someone falls victim to to to fraud in any way, the community banks are making those customers whole.
▶ 1:54:12And when you add the technology, the expense of additional insurance that Miss Castillia had had had referenced, they're doing yman's work in in terms of protecting their customers and they need as a business, especially many many community banks are small businesses, they need that ability to to be able to cover some of those costs. So, we're potentially creating a catch22 situation. Right. All right. With that, Mr. Chairman, my time is expired. I yield back.
▶ 1:54:37Gentleman yields back. Now recognize the gentleoman from Ohio, the ranking member of our national security subcommittee, Miss Batty, you're recognized for five
▶ 1:54:45Thank you, Mr. Chairman, and thank you, ranking member uh Waters. And to all of our witnesses here, thank you for your testimony and your commitment to uh community uh banks. That is good to hear.
▶ 1:54:58I've been a big proponent and advocate for making sure not only for the institutions but for our consumers uh whether it's in rural America, urban American or even suburban America, we have found a lot of people find comfort in going to their small community bank. So uh with that uh I'll start with you Mr. uh Anderson.
▶ 1:55:22Uh, as you probably are aware, this committee uh, recently passed the Keeping Deposits Local Act led by myself and my colleague on the other side of the aisle, Congressman Emmers. Uh, through the mark, it went all the way through the markup to expand the use of reciprocal deposits so that community financial institutions can broaden their insurance coverage and compete for larger accounts.
▶ 1:55:48Can you share with us or discuss how pairing this legislation with broader deposit insurance such as what our ranking member Maxine Waters proposed, how would that help small and community banks?
▶ 1:56:05Uh, thank you for your question, Congresswoman. And I agree that the expanded use of reciprocal deposits and and custodial deposits is beneficial to community banks, uh, particularly the ones that can take advantage of it. and it is quite complimentary to the reforms that ranking member Waters has proposed and they don't preclude one another um uh just given the the uh the targets of those uh those bills.
▶ 1:56:34Um, I I I agree that it's important uh for regulators to weigh in on how these components fit together. And I think part of what the FDIC should be studying is how reciprocal deposit arrangements and potential increases to deposit insurance fund uh uh impact one another.
▶ 1:56:54Okay. Thank you. Uh we've heard a lot about community banks. uh but uh I am very fortunate in my district we have one of the newer MDI banks. So Mr. Anderson and I'll go down the uh line and asking uh others when we think about federal banking regulators and they have an obligation under DoddFrank to preserve and promote minority depository institutions or MDI.
▶ 1:57:21Uh, are there steps that federal banking regulators could take that would build on the bipartisan progress made during President Trump's first term, which provided 12 billion dollar in capital investments and grants to MDIs and as well as CDFIs.
▶ 1:57:39So, Congresswoman, I I I very much appreciate your question in large part because MDIs and CDFIs are near and dear to my heart. Uh when I first began my career in u banking regulation at the Federal Reserve as a teenager um the first project I ever worked on was a partnership for progress which is the Federal Reserves initiative designed to promote and preserve minority owned banks. So I think that MDIs and CDFIs play a critical role in our financial ecosystem.
▶ 1:58:09Um, and it's important that that this Congress and and the administration continue to take take steps to uh to protect and preserve
▶ 1:58:19Others? Yes, sir.
▶ 1:58:20Ma'am, as a womanowned bank, I'm a state chartered institution and the OC is the only regulatory agency that recognizes womenowned banks as minority depository institution. So although we are part of the partnerships for progress underneath the federal reserve, we are not considered an MDI with those state two of FDIC and the Federal Reserve and I believe that's something that could be changed to help there be more inclusive um inclusivity when it comes to womenowned banks and hopefully that we have more than 15 down the road.
▶ 1:58:48Thank you.
▶ 1:58:48Old Nashville's been working for the last two years to create Indiana's first minority depository institution called Generations Community Bank. It's been a two-year uh long journey to create this organization and I do think having uh higher FDIC insurance limits would be helpful to this institution given it's a brand new institution and um depositors might be less likely or be more concerned about putting uh anything above the FDI insurance limits.
▶ 1:59:16So I think it's very complimentary to to what we're trying to do with creating a new
▶ 1:59:20Well, thank you. And if uh Adelfi Bank I hope I'm not speaking for them, but they've been very successful in meeting all their benchmarks and getting through it. I'm sure they'd be willing to talk to you since you're not in Ohio.
▶ 1:59:32Yes, thank you very much. We've talked for them.
▶ 1:59:33Okay, great. I'll let them uh Jordan Miller and Kevin Boyce know. Thank you. Anyone else?
▶ 1:59:39And ma'am, continued regulatory right sizing. If you you look at minority depository institutions and CDFI, they're overwhelmingly community oriented community banks. And if we can make sure that the regulation fits their business model, I think that would go a long way to helping make sure deposit insurance fits that.
▶ 1:59:58Gentleman yields back. Now, a pleasure to recognize the gentleman from Ohio, the chair of our national security subcommittee, Mr. Davidson, you're recognized for 5 minutes.
▶ 2:00:06Thank you, Chairman. It would be great if we lived in a world where the success of a bank is based on how effectively they manage their assets and the level of service they deliver for customers, not where success is based on the size and scope of taxpayer funded stipens. Unfortunately, this is not the present case. And today, we'll examine whether or not taxpayers should wind up on the hook for another $10 million of deposit insurance.
▶ 2:00:30Um the taxpayers protection alliance estimated that the cost of the Hagerty also Brooks legislation for banks would result in a $ 42 billion special assessment and billions more in added premiums each year. Uh we also have uh a statement from a coalition of 11 conservative groups uh opposing an increase in FDIC insurance. I'd ask unanimous consent to submit to the
▶ 2:00:58without objection. However, some have claimed that increasing deposit insurance would not result in higher costs for banks. So, I want to drill down on it and make sure we get it correct. It seems to be based on a provision in the bill that deals with how the FDIC calculates the deposit insurance funds reserve ratio.
▶ 2:01:16It directs the agency to not count the full amount of newly insured deposits and instead spreads costs out over 10 years, which appears to be an accounting slight of hand to prevent the reserve ratio from going below its statutory minimum. Miss Castillia, what do you think about this buy now pay later approach to deposit insurance? I I think I find it really difficult to um to understand how this is a disciplined way for there to be fiscal policy going forward.
▶ 2:01:46It exposes the fund to so much fragility and puts with the fund that it just as u Mr. Furlow suggested is um the deposit insurance is the keeps us from having runs and if there is a perception out there that we don't have the fund to back up our insurance and this is me messing up the math and making it very fuzzy so it's not transparent that the fund is actually adequate.
▶ 2:02:10Um I find that exceptionally concerning concerning trying to establish trust with the customer I have to have the trust in the
▶ 2:02:17Well we certainly don't like fuzzy math. Um, so when we consider changes to the deposit insurance framework, it's important that we take away the right lessons from the spring of 2023 instead of sp spinning revisionist history. The failures of Silicon Valley Bank and First Republic Bank were fueled by concentrated uninsured deposits, mismanaged risks, swift deposit outflows due to technology changes, and frankly supervisory failures.
▶ 2:02:42I'd like to point out that in my assessment, Signature and Silvergate were victims of Biden's unlawful war on crypto and I don't think they were actually unsolvent except for that. Mr. Norquist, would raising deposit insurance limits have prevented the failures at these banks?
▶ 2:03:00So, Mr. Anderson, thank you, Mr. Anderson and Mr. Furlow, both of your written testimonies mentioned how we need to reassess the deposit insurance and bank resolution frameworks together. Why is it important that Congress does both if we're going to take a comprehensive approach to deposit insurance reform?
▶ 2:03:20Certainty. Um the banking industry abhores having unc uncertainty. It makes make do doing business so much more difficult. And when you think especially the bank resolution process for example uh the the failure that occurred in Oklahoma, a lot of folks had questions about how how did that process uh t take place? um there's a lot of unanswered questions there.
▶ 2:03:40So whether it is deposit insurance so that depositors know that their deposits are safe in in an emergency or the bank resolution process um that there's some certainty to the process and it's transparent.
▶ 2:03:53Thank you for that. You know, speaking of comprehensive reform, another issue that should be addressed in this jurisdiction is interest on excess reserves. Mr. Chairman, I'd like to submit uh this document from um FGA into the record. Uh as as we discuss uh padding the balance sheets of banks with FDI insurance in 2024 alone, the Fed paid objection.
▶ 2:04:14Thank you, Chairman. The Fed paid over $186 billion in payments directly to banks. This is money from our treasury to banks because they're holding their balances in the Federal Reserve. Money that they don't even have to deploy and their own balance sheets. They don't manage their own balance sheets. They don't even have to do underwriting. They just leave it on deposit with the Fed and take a big break. Instead of sending taxpayer dollars to profitable banks, we should focus on accountability for our financial system and paying down the $ 38 trillion deficit.
▶ 2:04:44FGA estimates this could save over $1 trillion in a 10-year window. Lastly, as we talk about the private sector, I'd like to submit for the record that there is a private alternative. So banks that want to offer insurance to their creditworthy depositors could do their own underwriting and they could offer a private sector insurance uh sort of American share insurance based in Ohio. I'd ask unanimous consent.
▶ 2:05:05Without objection will be included in the record.
▶ 2:05:07Thank you chairman. I yield my time.
▶ 2:05:10Gentleman yields back. It's pleasure to call on the gentleman from California, Mr. Vargas, who is the ranking member on our monetary policy task force. You're recognized for five minutes.
▶ 2:05:19Thank you very much, Mr. Chairman and ranking member. I think this has been an excellent hearing and I really appreciate all the comments. In fact, interestingly, when you sit on the second row, most of the things you were going to ask have already been asked by the gentle people on the first row or the rear, however you want to call that, the elevated row. So, I do have a few questions, however. Um, Mr.
▶ 2:05:43Quest, I believe your first statement here was something like government shouldn't pick winners and losers. I believe that was one of your first statements. And then I read here also in your written testimony. I testify today against putting taxpayers and consumers on the hook for bank failures. This exclu this includes expanding federal deposit insurance coverage beyond the $250,000 limit. An expanded guarantee would magnify moral hazards.
▶ 2:06:11slow lending economic growth and expose taxpayers toward limited backs stop liabilities. Members should understand that raising deposit insurance coverage will only make banks bailouts more likely. I think all those are correct and notwithstanding Ralph Waldo Emerson statement that you know foolish consistency is a hobgoblin of little minds. You've been pretty consistent.
▶ 2:06:37And so I was curious that when the federal government took a 9.9% interest in Intel, many voices were heard and I don't remember hearing
▶ 2:06:50It wasn't a good idea and it isn't a good idea for the federal government, state government or local government to own businesses in whole or in part.
▶ 2:06:59So wouldn't that lead towards socialism when the government is owning businesses like this? Isn't that picking winners and losers? And isn't that the government owning
▶ 2:07:08it? It certainly gives the government an interest in the success of that company.
▶ 2:07:13Uh which means it will lead I would think it would tend to lead to government picking winners and losers by buying from that company.
▶ 2:07:22Isn't socialism the government owning the the means and modes of production?
▶ 2:07:27Yeah. And this isn't this the case with Intel then?
▶ 2:07:31Government take took about a 10% stake in it.
▶ 2:07:33Yeah. It's okay. It's 10% socialism there. Yeah, I agree with you.
▶ 2:07:37Yeah, it's not a good idea.
▶ 2:07:38It's not a good idea. No.
▶ 2:07:40Write a memo.
▶ 2:07:42And you gave the example too of the store that sells potatoes. And you said the property tax on that store is not paid by the store. It's really paid by the customers.
▶ 2:07:53Isn't that what you said also?
▶ 2:07:55So, who pays the tariffs?
▶ 2:07:57Tariffs? Well, American tariffs,
▶ 2:08:00are paid by American consumers. That's
▶ 2:08:03French tariffs are paid by French
▶ 2:08:06Okay. Well, I appreciate that you have been consistent. That's what I do appreciate. Now, I I I appreciate the diversity of ideas here because I do think that ultimately we can come to some agreement generally. Um because I I do think the the reason we have FDIC insurance in the first place is so there's not a run on the bank. Not really to ultimately what happens afterwards is so it doesn't happen.
▶ 2:08:30I remember the testimony of the three CEOs that we've been talking about their banks today and one of them, you know, basically said, 'Look, I didn't do anything wrong. My bank didn't do anything wrong. The idiot over there on the corner, he's the one that screwed up and I just got sideswiped. And in fact, you know, a bunch of people that had banked with me for 20 years came to me and I came to them and said, "Please don't do this. Don't do this to me." They said, "We can't. We got to get out.
▶ 2:08:57You know, we we have to go somewhere where it's secure." And so that's what they did. Once the panic set in, once the panic sets in, it's it's it's difficult to stop. That's what his testimony was. I kind of agreed with it. I thought, yeah, it probably is the case. Once the panic is in, you want your money out. And so I think we we need to figure out this and modernize it without the government being too much on the hook. I I appreciate that.
▶ 2:09:20And that's why I think studying this thing and getting everyone together as the bill, the ranking member does, I think that's a very good idea. I think that's what we should do to make sure we don't screw it up and to make sure we we do it better and at the same time not expose the taxpayers to a lot of liability here. I think that that's important. So with all that being said, there is one thing that I think we haven't mentioned here that that's too bad, but I think it's reality and that is economies of scale.
▶ 2:09:48You know these big banks have an advantage right now and that is that technology is very expensive and yes that modern regulation is very expensive. It's hard to absorb those costs for a small bank or even a medium-sized bank. The bigger banks can do that and that's why they have economies of scale. That's an advantage. And the second advantage not advantage but one of the things I think that's also a truism the big banks are getting better.
▶ 2:10:14I mean, they they they don't loan as well as I think as as the local banks do, and I think that that's true, but they're getting better. Their products are getting better, and I think that's one of the reasons why they're growing also. But anyway, all that being said, I I appreciate the conversation here today very much and and hope we can get to some agreement. You had a question. Yes, sir. Go ahead.
▶ 2:10:35I would just add while I generally agree that they have more ability to spend money in technology, uh banks like Mrs. Castila and and our bank, Old National Bank, are better at relationships and being closer to our clients.
▶ 2:10:47Yeah, I I think so, too. And I think you also, as you said, you loan more, a bigger percentage. I think that's a positive thing. That's why I'm in favor of small and medium-sized banks, but I also recognize large banks have an advantage. And
▶ 2:11:01and that proximity to the customer also makes us much more creative and relevant in the technology they provide.
▶ 2:11:06That's right. And with that, I yield back. Mr. Chair,
▶ 2:11:09gentleman yields back. proud to recognize the gentleman from Texas, Mr. Williams. He's the chair of the Small Business Committee here in the House. Yield five minutes.
▶ 2:11:16Thank you, Mr. Chairman. And also, I'd like to say hello to all my friends on the panel today. Thank you for uh for being here. Uh my home state of Texas is home to many community and regional banks. And these financial institutions are the backbones of their communities and help support main street entrepreneurs within those communities. And during recent periods of financial instability, even the soundest financial institutions face sudden deposit overflows driven by fear rather than fundamentals.
▶ 2:11:41That kind of disruption threatens the stability of deposits and flow and and of credit from smaller financial institutions to entrepreneurs that their businesses rely on to meet payroll, invest, and grow. So my first question, Mr. Furlow, in the event of a bank failure, how could the proposed two-step approach protect the deposits of community and regional banks? Well, first m Mr. Chairman, thank you for the question. Great to see it. Um the first and most important thing is that we can act with speed.
▶ 2:12:09Um with the EAG proposal that we've uh that we are proposing, um quickly EAG could be put into place and so you wouldn't have doubts about the security of deposits in a community bank or a midsize or or a regional bank. So that's number one. We have to remember that most of our small businesses in this country bank with community banks. It's back to the relationship uh discussion that we heard from Mr. Ryan, Miss Castillia. So that's that's number one is is that we have to and we have to do that with with speed.
▶ 2:12:38Uh the second piece is make sure we have fairness. Fairness is terribly important. Um because as we saw in 2023, some of the larger institutions did did see inflows of deposits away from our community community banks. And why? because the government couldn't say that community banks were going to get the coverage even though they paid into the deposit insurance system.
▶ 2:13:00Uh deposit insurance plays a crucial role in maintaining public confidence especially for smaller and regional banks. However, as we evaluate potential changes, it's important that we carefully stress assess the full impact. So, we know that more than 99% of deposits are already insured under the current limit. Yet we lack in depth data on how many basis businesses or personal accounts would be affected by raising that limit.
▶ 2:13:23So, Miss Castillia, can you speak to the risk of expanding uh deposit insurance limits without first having accurate data on how many accounts would be impacted and what would that mean for the deposit insurance fund?
▶ 2:13:37Thank you, sir, for that question. acting FDIC chair talked about this in his testimony, how difficult it is to even to estimate not only the current accounts that might be eligible for this expanded coverage, but how accounts would shift into these new in into the non-interest bearing accounts, especially if I mean I I would work around this to game it as much as possible just like my other banks would. If you could do so legally, you're going to do so in a way to be take full advantage of these opportunities for your customers.
▶ 2:14:05So I think you would see a huge movement into these insured accounts um that could really expose the diff to much more um potential exposure um than what we estimate it to be and we would already be on the hook for those costs um whether it was um a bank failure that occurs at the time and there's a skinnier um diff that's available for them or that we're having to ramp up cost over that 10-year
▶ 2:14:29Okay. Uh in my final question, any discussion about deposit insurance must also uh discuss the failed bank resolution framework given that any increase in deposit insurance will increase costs to deposit insurance uh fund in the event of a bank failure. So those costs will of course be paid for by banks through higher uh insurance assessments and in the worst case scenario could require a backs stop from taxpayers. So Mr. furlow.
▶ 2:14:55Can you tell us about the complex interaction between deposit insurance and bank resolution and tell us whether you think that uh uh that in order uh to address reforms to one, we must address reforms to the
▶ 2:15:11Sir, this is all tied together. At the end of the day, uh our banks are paying premiums into the deposit insurance fund. And u I I'd mentioned ear earlier that we have to have certainty uh to this process whether that is the bank resolution process or whether it what what will happen in a systemic uh emergency. So we have to address this in a comprehensive way.
▶ 2:15:33If we just do it as as a one-off here and there on on each piece, then it's we're we're putting various segments and the entire system potentially at risk with these gaps. And so that's why it makes sense under our two-step proposal to make sure that we have a systemic backs stop in place so we have the time to address all of these uh very complex issues.
▶ 2:15:55Okay. Thank you. And Mr. Chairman, I ask unanimous consent to enter into the record a statement from Steven Moore, founder of Club for Growth and Unleash Prosperity, raising concerns with who stands to benefit from expanded deposit insurance and who will bear the cost.
▶ 2:16:09That will be included in the record.
▶ 2:16:11With that, I with that I yield my time back. Gentleman yields back. We now hear from the gentleoman from Texas, Miss Garcia. You're recognized for five
▶ 2:16:21Thank you, Mr. Chairman. Thank you to all the witnesses for joining us today. I think we all remember well and some of us have talked about it already that Silicon Valley Bank, Signature Bank, and First Republic Bank when they all failed. And as everyone has already referenced, emergency measures were taken, including the provision of deposit insurance for all depositors to prevent contagion to other banks. Ensuring the depositors was high priority.
▶ 2:16:47Since the crisis, there has been a bipartisan understanding that federal deposit insurance does indeed need to be modernized. So, let's get something done. I think we can do it. And I want to start my questions today with my fellow Texan on the panel, Mr. Chris Furlow. In your remarks, you talked about a two-step proposal. Uh the first step being to authorize an emergency transaction account guarantee or EAG. I found that interesting that it's called EAG because that's the um the tax system to go through the Texas.
▶ 2:17:18Uh uh the EAC program uh is also uh something that that is uh talked about in in representative uh waters of the ranking members uh reform bill which includes a provision which would allow regulators to temporary establish the program for 6 to9 months. Any further extension would require congressional approval. In your testimony you recommend 120 days which is four months uh before needing congressional approval.
▶ 2:17:47Do you think that 120 days is enough time to preserve uh confidence and to mitigate any systematic
▶ 2:17:57Well, I think if you if you look at the 2023 failure, the reason things were were extended um where the crisis was was extended because there was so much uncertainty. If we have EAG in place, we can stave off the runs that continue uh uh things to be destabilized. And so 120 days will do a couple of things. One, it will bring calm to the system.
▶ 2:18:19If folks know that their deposits are safe, regardless of the size of institution that they choose uh to to bank, that will bring calm to the system. Number two, 120 days will give us a full postevent quarters worth of data. And as you all know, that's always been a huge problem with uh the discussion of deposit insurance forms, the lack of data. We saw that in the in the Senate discussions uh earlier this year. We continue to talk about it here today.
▶ 2:18:45That would give us a full quarter's worth of data in that situation to determine what we're actually seeing. That would inform you here in the Congress, it would inform regulators and would inform the administration about the next steps that they that they can take. And so, um, that's why we say 120 days and then if you in the Congress determine that we need to extend that, you can absolutely do that.
▶ 2:19:06But, so do you just think that that 6 to9 months is just too long? I I'm I'm trying to see what the real difference is here.
▶ 2:19:13I do just think of at the end of the day, if we're able to keep a um uh any any type of event from being extended, 120 days should be sufficient and especially if we're getting data, which we don't get today. So, I understand why we've talked about maybe extending that that longer, but we think, you know, uh when we're addressing moral hazard by keeping it to 120 days.
▶ 2:19:34Let me just move on then. So, and the the the second part of your two-step, and maybe you should just call it the Texas two-step, [laughter] is to modernize the federal deposit insurance structure to reflect the 21st century banking landscape. Could you expand on that? What exactly do you mean?
▶ 2:19:50Well, we just we've we've talked about a lot of those things today, the the bank resolution process and and how that that will work. when when I look at um our current landscape in deposit insurance, it's far just it's far beyond the simple allocation of what assessments uh might might have to be, what the thresholds uh might have to be. And so this is a all-consuming uh type of issue that we need to explore comprehensively and not do this in a peacemeal fashion.
▶ 2:20:21Right. Mr. Anderson, I wanted to ask you about community banks. In your opinion, would expanding deposit insurance promote deposit or confidence in our community banks?
▶ 2:20:30Uh, yes. I I believe so. I think an increase in deposit insurance limits, uh, particularly one that's equitable and and applies a level playing field across the industry will increase confidence in depositors, not just in community banks, but across the the banking system.
▶ 2:20:47So, what do you think about the Texas twostep that he's talking about?
▶ 2:20:51Uh, I agree with the first step. Uh my uh suggestion would be to rely on the the time window that's in uh ranking member Waters's bill. The events of of 2023, if you if you look at the calendar, First Republic failed on uh May 1st and Silicon Valley Bank failed on March 10th, but there were still stresses in the system beyond the failure of First Republic.
▶ 2:21:20So, if you do exercise a TAG program to ensure uh to to cover all uh transactional accounts, it it probably makes sense to have a six-month period with the potential extension to nine months.
▶ 2:21:33Okay. Thank you. And I see my time has run out. I yield back.
▶ 2:21:36Gentlemen, gentleoman yields back. Gentleman from Tennessee, Mr. Rose, is recognized for five minutes.
▶ 2:21:42Thank you, Chairman Hill and and Ranking Member Waters for holding this important hearing. And thank you to all of our witnesses for taking time to be with us today. Mr. Anderson, you've reviewed the call reports and the deposit data. Uh tell me, did deposits migrate from smaller bank banks to larger banks in the spring of 2023?
▶ 2:22:00Uh yes. I I I think the regulators the the the uh the postmortem reports reflected that.
▶ 2:22:07And did deposits also migrate to government money market funds and and
▶ 2:22:13Uh yes, I believe so.
▶ 2:22:15Thank you, Mr. Ryan. Some have alleged that expanding deposit insurance coverage could increase moral hazard. What do you make of that argument? And as a bank exe executive, would would higher coverage for non-interestbearing transaction accounts compel you to take more risks? Uh clients keeping more money in their non-interest bearing business accounts are not going to increase risk for Old National Bank.
▶ 2:22:42uh and I believe protecting depositors does not create a moral uh hazard in this situation. Uh people do not put excess funds in non-interest bearing accounts. Uh uh um they do that very thoughtfully and uh they only do that for operating
▶ 2:22:59Thank you. And Mr. Ryan, I'm focused on the needs of Tennessee banks and credit unions in my home district. Some have suggested reciprocal deposits reform as a way to address flaws in the current system. Would adjusting reciprocal deposits be enough to meet the needs of Tennessee banks?
▶ 2:23:16I do not believe so. I think we're just uh creating potentially another problem. Concentrating risk within those reciprocal networks, other private insurance programs creates a whole new set of unknown risk and unnecessarily complicates uh business owners understanding of what insurance looks
▶ 2:23:33Thank you. And Mr. Anderson. Uh, given how rapidly rumors can spread on social media and trigger depositor panic, how well is the current $250,000 FDIC insurance limit equipped to contain the risk of a social mediadriven bank run? And would raising the coverage limit provider a stronger stabilizing effect on depositor behavior in such fast-moving scenarios?
▶ 2:24:00Uh, great question, Congressman. I think if you look to the the original intent of deposit insurance, it it it didn't take into account the uh social media and the speed of communication today.
▶ 2:24:13So, I don't necessarily believe that the deposit insurance threshold, whether it's $250,000 or another limit, uh will will uh kind of tame contagion through uh communication, just how quickly information spreads and because of the technological capabilities we have today and the speed of money movement.
▶ 2:24:35Thank you, Mr. Anderson. In what ways could temporary emergency programs like a modified version of the transaction account guarantee program in 2008 be designed to minimize market disruptions while providing short-term depositor
▶ 2:24:53So I think an application of the TAG program uh helps to fill a a gap within the existing um financial regulatory response to a crisis uh uh framework. The systemic risk exception allows regulators to identify individual institutions to fully ensure uh deposits, but the tag program gets applied to the entire system.
▶ 2:25:18So if you were if you had the opportunity to deploy the tag program on March 12th after Silicon Valley Bank and signature failed, then more likely than not, you don't have the failure of First Republic on May 1st.
▶ 2:25:31Thank you. Appreciate the insight. Mr. Brian, in your written testimony, you stated one MBCA bank helped a client spread a $10 million payroll deposit across more than 30 banks through a reciprocal network just to simulate coverage, fees, comp, legal complexity, and stack of monthly uh statements.
▶ 2:25:51Could you explain on how situations like this illustrate the practical burdens and complexity that businesses face as a result of the current FDIC deposit insurance limits?
▶ 2:26:02Well, the reciprocal networks in the best of times uh can act as a substitute. Um but what I would tell you is uh most of our businesses do not like that substitute. Less than 1% of our accounts choose to use that as a substitute. Um and it creates complexity and higher cost for for both the owner of the business as well as the the business of the bank. Um and I just don't think um you know that is the best uh tool uh to as a substitution for FDI increased FDIC insurance limits.
▶ 2:26:33Thank you. I appreciate that. I see my time's running out. Mr. Chairman, I yield back.
▶ 2:26:37Gentleman yields back. The gentleman from Illinois, Mr. Cassen's now recognized for five minutes.
▶ 2:26:41Thank you, Mr. Chair. Thanks to all our panelists here. Um Mr. Norquist, I'm used to seeing you at will on the hill. I'm haven't seen your thespian side yet, but I always appreciate it. [laughter] Um, so I think some of my colleagues have mentioned that FDIC Vice Chair Hill recently said that the agency doesn't have the data on where the uninsured deposits are beyond, you know, the very narrow $250,000 threshold. Mr. Furlow, you're nodding.
▶ 2:27:07I know you'd raised some similar points in your testimony and I'm it it seems to me that there's two largely separate data questions. One is what do we know about the deposits in banks that offer FDIC insurance but are beyond the insured threshold and then separately what do we know about deposits that are in banks that don't offer FDI or other financial institutions that don't offer that. Do I understand your testimony you're focused primarily on that first question?
▶ 2:27:34That's right. We we just don't have the data. I mean that was as you as you mentioned that was in vice chair Hill's testimony. Um Chairman Scott on the Senate banking side also had requested that data. So so this gap that we have in data is why we need a little more time to ensure that we can
▶ 2:27:50So I guess just to that point I'm I'm a I'm a nerd. I'd like to see the data. I have some concerns that the FDI has laid off about 20% of their staff in the last year. Do they have the horsepower to get that data or do we need to be thinking about making sure that the FDI has the resources to ask that question?
▶ 2:28:07Well, I I I can only say this. Um, you'd have to ask the FDIC if they if they have uh the tools for that, but we still need the data.
▶ 2:28:16Well, [laughter] anyone from the FDI is watching and still employed, give a ring. Um, shifting to the deposits that are outside of the uh deposit insurance system, Mr. Anderson, the there was a Treasury Department report in April that said that stable coin adoption could result in 6.6 trillion with a T dollars of deposit outflows. Um, do you have concerns about the rise of stable coins displacing traditional bank deposits?
▶ 2:28:44Uh, very good question, Congressman. If I if I could just touch on uh quickly the question about the FDIC uh and as well as your stable coin point, but I think once a study is conducted, the FDIC should solicit input from the banking industry and other stakeholders. You can do this through an RFI or through a survey uh to get information and data around these types of accounts.
▶ 2:29:08um how many are insured, how many are uninsured and the the size and the number of of uh transaction accounts. Um with respect to your your other question about stable coins, yes, I do think that inviting additional risk into the system does expose uh future losses to to the diff. Um uh
▶ 2:29:30but but I guess I'm asking two questions and the one question is is it pulling deposits out of the traditional banking system? Then the separate question is where are those deposits going? You know, we had introduced amendments to say that stable coin should only be able to invest those in insured accounts. Those amendments were rejected by my colleagues. So where are those where is the money that the stable coin issuers are taking in? Where's it ending up?
▶ 2:29:55Yeah, that's a really good question that I don't have the best answer for you today, but I can get back to your office. So, so if we were going to have a run on those uninsured deposits, do we know like where does that contagion sit in the banking system? We just don't have the answer to that yet.
▶ 2:30:08Um, I I don't have the answer to that today and I'm not sure if others do as have any of you seen good data on that
▶ 2:30:18I think the prevailing thoughts are those are going to be collateralized and they're going to sit with the nation's largest banks, not at midsize or community bank levels. Well, do keep in mind that USDC, one of the largest stable coins, is only worth a dollar today because we bailed out the uninsured deposits at Signature and SVB.
▶ 2:30:40And we we tried to close that barn door in the Genius Act and say these should be in insured accounts and the barn door was was jacked open. Are they in European? Are they in Euro dollars? Right? Do they sit somewhere else? Um and and and going back to the first part of that question for you, Mr. Anderson, if that if those deposits are going out of banks,
▶ 2:31:02does that limit banks ability to invest in the communities, the things we want banks to do?
▶ 2:31:06Yeah, 100%.
▶ 2:31:08Because the Genius Act doesn't let that you've got to put, as you just said, Mr. Ryan, those deposits have to go into things like treasuries and cash. They can't go into let me help your small business uh get a working capital line so you can go and do some innovation,
▶ 2:31:20right? every dollar uninsured or insured that is not in a a depository institution is not able to be deployed by bank in the communities that they
▶ 2:31:31Um yeah,
▶ 2:31:32I do have a data point back on your previous question. The midsize bank surveyed its members and a $10 million coverage uh increase to $10 million covers 90 plus% of the account holders. So just a data point for you. It's a it's a s sample of about 100 banks. Yeah, I yield back. I'm hearing the gabble. Thank you all. Let's get data and let's close barn doors.
▶ 2:31:53The gentleman yields back. The gentleman from Pennsylvania, Mr. Muer, also the chair of the subcommittee on oversight and investigations, is recognized for five minutes.
▶ 2:32:01Well, I think I for one time agree with my colleagueu's final comment about [clears throat] data. So, that makes it a interesting day already. Um, so we're all here. Um, you know, we have a sort of a a saying here the chairman started um make community banks great again. We know the data we're there's about 1,200 to,300 less community banks today than 10 years ago. A large [snorts] portion of that was through consolidation. Whether that's a good thing or not, that that that's what happened.
▶ 2:32:30Um so we're at we've been at 250,000 in FDIC insurance since what 2010 with no inflation increases or anything. And um you know you can't help but think but loss of some of those community banks and all there's less access to capital more small businesses have difficulty gaining that access to capital.
▶ 2:32:52Uh however, we here are talking about raising the 250 or not or coming up with other solutions, but we want to avoid all of the unintended consequences, which is why I agree with my colleague about that and why uh our our chair uh French Hill uh wants uh to gain more data and full understanding so we avoid that. So, all that being said, Mr. Ryan, um, do you believe the $10 million in deposit insurance coverage would help regional banks?
▶ 2:33:23I believe it helps all community uh, midsize and regional banks.
▶ 2:33:27Okay. All right. It helps. Uh,
▶ 2:33:34I think I think you have to ask, is there a moral hazard here? Which we do not believe. When you're talking about protecting America's small business, there is no moral hazard.
▶ 2:33:44Okay. Um maybe um the um but that's what we're we're trying to figure out here, right? Um so do you think um Miss Castilia, would you think that um how would they absorb the potential the larger banks, the higher premiums associated with expanded coverage? I mean, M Mr. Norquist suggested that higher costs, less lending. What's your thoughts on that?
▶ 2:34:10Yeah, I'm not I'm not sure how it'll affect the large institutions if they'll be able to absorb this fairly easy if there but I also doubt that there'll be very much migration and liquidity from the larger institutions just because we increased to the 10 million.
▶ 2:34:22Okay. So, how would it affect your bank?
▶ 2:34:25In my bank, we would ultimately start paying higher assessment fees. If there was a failure, I would have more exposure to special assessments. Um it would it would I think unlevel the playing field even further for regional banks to have more liquidity sources potentially to deploy um to make it where it's um you know it just continues to be uneven in our in with with small community banks.
▶ 2:34:45You believe in the reciprocal deposits that works out pretty well for you?
▶ 2:34:48I've been using it for 20 years. I've never had an issue. We've gone through the financial crisis. We went through the SVB fiasco and never had any kind of volatility there. My customers and contrary to Mr. Orion are very um astute when it comes to utilizing reciprocal networks. We have this integrated into their online banking systems. They they are able to select which banks they want to exclude. They're able to do due diligence on these banks as if they were going driving from lobby to lobby opening $250,000 accounts.
▶ 2:35:18We find it as a strength and a way to really continue to enhance our relationship with the
▶ 2:35:22It it does seem like a tactic to deal with the 250,000 FDIC. Yes. So, and it's so consortiums of banks easily could get together too and they have to do the same thing. It but it basically is a technology solution that makes it where the customer doesn't have to drive to bank to bank where we now have a technology platform where they're able to distribute their
▶ 2:35:42M you want to say something?
▶ 2:35:44Yes. Uh if you are a small business owner and you were used to receiving one bank statement and now you have to receive 30 bank statements as a result of using reciprocal networks. That's more complex. I would also add these conversations work during normal uh periods of time, but in times of crisis, it's really hard to explain how reciprocal networks work.
▶ 2:36:03I'll just say that we do consolidate our statements to one statement for our
▶ 2:36:07I can understand both your positions. Mr. Furlow, uh will the banks what's your position real quick? And I want to get to Mr. Norquist on the reciprocal because you you you view a lot of banks and were your community banks in jeopardy uh during the SVB crisis. during the SVB crisis, you know, we we've got a lot of community banks where they have large depositors.
▶ 2:36:27We have a huge oil and gas industry, for example, in in the state of Texas and you have large depositors in community banks and they their lending capability is impacted when you see an outflow. So, uh again, our proposal on EAG to make sure we have a backs stop on the front end to stop those outflows right from the get-go is terribly important.
▶ 2:36:47Thank you, Mr. Norquist. What's the solution here? Well, not to [clears throat] go deeper. I mean, when we went up to 100,000, things didn't get better, they got worse. Um, and in in the past, we should open the door more to private sector insurance. This works in many many industries that, you know, we deal with everything from floods to to hurricanes. Uh, with insurance, banks can make the
▶ 2:37:17We'll have to talk offline. Apologies. Uh, my time is is over. I yield back, Mr. Chairman.
▶ 2:37:22Gentlemen's uh the gentleman yields back. The gentleoman from Massachusetts, Miss Presley, is now recognized for 5
▶ 2:37:28Thank you, Mr. Chair. One vital institution keeping our communities afloat and helping everyday people build wealth and stability are community development financial institutions or CDFIs. Now, people at home may not know them as CDFIs, but they are the local credit unions with consumer-friendly interest rates, the affordable housing nonprofits with units that you can actually still afford, and the lenders keeping the community health centers in your neighborhood thriving.
▶ 2:37:54There are dozens of CDFI branches in Massachusetts serving communities in need that received over $400 million from the CDFI fund. Now, these funds finance nearly 600 affordable housing units. We all know there's an affordability crisis in the country. And we certainly see that play out when it comes to to housing. And housing is certainly much more than shelter. You know, it is dignity. Uh it is health, it's refuge, it's social and economic mobility.
▶ 2:38:22So, that's 600 families with a safe place for kids to study, for uh for parents to rest after a long day at work. So, we should be celebrating our CDFIs. We should not be attacking them. But the Trump administration is trying to illegally fire the entire agency to stop this essential work. It's my hope that in today's hearing, we can find ways to improve deposit insurance coverage for these community centered institutions. Mr.
▶ 2:38:48Anderson, some depositors have expressed concerns that their money won't be as safe in a smaller bank. These misconceptions are dangerous and contributed to the depositor run we saw in the Silicon Valley bank failure in 2023. Can you explain why CDFIs and also why minority deposit institutions or MDIs are safe and reliable?
▶ 2:39:08Um, thank you for your question, Congresswoman. I think MDIs and CDFIs are vital to our nation's economy. Community banks in general serve as engines for economic growth in the neighborhoods and in the towns and in the cities that they serve both in rural America and in in cities.
▶ 2:39:27Uh I I think it's equally important for us to have a diverse um dynamic financial system that has small banks um midsize and regional banks and gibs. It's in our broader national interests for us to have institutions that can serve various types of of borrowers and customers and our uh position to make um uh offerings of products and services to all different types of of of corporate entities and people.
▶ 2:39:58Thank you, Mr. Anderson. Um Mr. Ryan, could you expound um building on that point uh by Mr. Anderson about if we were to increase the deposit coverage, um it's not just beneficial to urban communities, but how does this help rural communities better navigate a crisis? Could you speak to that?
▶ 2:40:16Yeah, Old National serves many rural communities and and they are the lifeblood of America, I believe, and it's important to be able to support all of those institutions that are in there, including CDFIs and MDIs. Uh, in fact, uh, we're in the process, as I said earlier, of helping create a new MDI for the state of Indiana that's really going to reach out to those communities and help with those projects like low-income housing and other affordability needs.
▶ 2:40:41Um, I I think it's paramount to have uh higher insurance limits to help these smaller institutions not only survive, but actually thrive.
▶ 2:40:51Thank you so much. And Mr. Anderson, how do um for the folks watch watching at home, how do everyday people not connected to these banks benefit uh indirectly by um improved depositor
▶ 2:41:07I think depositor confidence is a vital component to the trust uh in the broader financial system. when you have small banks in Oklahoma that fail or you have Washington Mutual that fails, uh it it threatens people's confidence and their faith in the financial system.
▶ 2:41:26So, it's incumbent on this body and on regulators to ensure that our banks are safe and sound and that our financial system is strong and resilient and we have a framework that resolves institutions that that fail uh through an orderly and and uh rapidly process.
▶ 2:41:44Thank you. So, I represent the Massachusetts 7th Congressional District and CDFIs in my district um include um organizations like the Boston Impact Initiative, Dorchester Bay Neighborhood Loan Fund, and of course the largest blackowned bank in the country, One United, I'll call uh the MA7 their home. And they provide housing, child care, and healthcare facilities, affordable healthy food and banking, and wealth buildinging opportunities to consumers as well as uh to entrepreneurs. truly an essential role.
▶ 2:42:14Now, while uh Republicans in the Trump administration are working actively to dismantle the CDI CDFI fund, Democrats are fighting to protect it. If my colleagues across the aisle were serious about lowering costs and growing our economy, they would stop attacking CDFIs. Continued federal funding and deposit insurance reforms that protect CDFIs um are essential and will help our nation's economy thrive. Thank you.
▶ 2:42:42Gentleoman yields back. I now recognize myself for five minutes for the purpose asking questions. We're all concerned about the resiliency and strength of our banking system. I want to ask a few technical questions. If I can as it relates to the proposal and the the uh the effects of it. Start with you if I can, Mr. Ryan. Uh obviously many companies are sweeping uh their cash in interestbearing accounts uh and only move it back into non-interest bearing accounts uh as they pay expenses.
▶ 2:43:08um is this impacts non-interest bearing accounts as it moves into interestbearing accounts. Um how would that impact um the the the proposal from the Senate?
▶ 2:43:19Well, I the proposal from the Senate is really centered around non-interest bearing business accounts.
▶ 2:43:24So, does they sweep it into an interest bearing account? Would it
▶ 2:43:27that would not be covered under I think this proposal.
▶ 2:43:29And is that what the vast majority of of businesses do? I I think only the largest businesses utilize those sweep functions that have those excess investment dollars. So really most of our small business accounts leave them in their operating accounts.
▶ 2:43:43Thank you very much. Um let me let me continue on on with you if I can. Uh currently the FD currently um the data that banks report on transactions on nonpartisan or non-transaction accounts the FDIC uh combines individual business partnerships and corporations together. uh then banks combine all those types of accounts and account holders together when they report on their insured and uninsured deposits. Um actually let me start with you Mr. Furlow on this. I'll let you comment on this as well Mr.
▶ 2:44:13Ryan if I can. Um do you think the current data uh the FDI has is sufficient to enact uh any of the proposals that we're talking about?
▶ 2:44:22I think we've got more work to do. Uh again, I think that's been addressed on the Senate side and and through through the hearing here today. We we we need more data
▶ 2:44:29and so so you would need more data so the banks would have a new reporting
▶ 2:44:35or we would need to put one in place.
▶ 2:44:37Is that an accurate statement?
▶ 2:44:39If if we need to collect the data,
▶ 2:44:41But you're saying we would need to off the first question. Is that accurate?
▶ 2:44:45I'm sorry, I don't understand the
▶ 2:44:46You would you would need to collect the data uh to implement the proposal.
▶ 2:44:50Uh which proposal?
▶ 2:44:53The proposal from the Senate. the
▶ 2:44:55Oh, from from from proposal. Uh I I would assume that you would have to do that. Again, that this is the biggest question that that we have is um why are we setting thresholds at at at certain uh places?
▶ 2:45:06But not even getting into the the threshold amount. I'm just talking about the burden. Maybe I can come to you, Mr. Ryan. Does that place a new and additional burden on the
▶ 2:45:13I think it's a relatively small burden to overcome. We deal with call report changes routinely and collecting this data and providing it to the uh to the government regulators is not a heavy burden for most financial institutions.
▶ 2:45:27Go ahead, Miss Cassier.
▶ 2:45:29Small banks currently don't report this data in the call report. So, it' be a completely different framework for the nation's 4,000 community banks.
▶ 2:45:35And how much of a burden would that be?
▶ 2:45:37Incredible. These are manually calculated numbers. And so,
▶ 2:45:40give me a rough estimate of what that would look like if it had a community bank that's in Wisconsin. How many hours of work or
▶ 2:45:47I mean technology would be over $100,000 most likely annually to be able to upgrade our technology to be able to compute this type of data and man hours I have 70 people I probably would have to add a half a person another person to be able to handle the data analytics.
▶ 2:46:01Thanks that that helps frame what that what that would look like for us. Um give you an opportunity Mr. Furlow. We talked about the the the valuation. Why this valuation? Why not why not a different one?
▶ 2:46:12Well I think that's that's the question that we have. Um un unfortunately we have folks who have different positions on this issue because we don't you know why 20 million why 10 million um you know those questions are are still are still out there I can tell you that my association is open to different proposals but where you draw the line on those it will impact the cost who pays these are all things that are still out there and why data collection is is so important more broadly not just in the in the framework that you just
▶ 2:46:42mentioned with Miss Castillia. Thank you very much. I want to come to you, Mr. Norquist, if I can. I think you and I always start uh from a place of the private sector is better to regulate than the federal government. The federal government's a backs stop uh if the private sector is incapable of doing the job. As we think about uh this broader space, um how would this proposal impact uh private sector innovation uh that could otherwise come online?
▶ 2:47:06Well, it's being put forward instead of private opening up to private sector innovation particularly in uh questions of insurance. We should be making it easier to for banks to uh get insurance and make and get the government out of some of the regulations. some some of which you guys did u in taking part of uh in some of the reforms from 200
▶ 2:47:342018 I'm sorry I remember trying wasn't remember the date but we took some of the DoddFrank mistakes out and opened up for more uh more opportunities so I think we just need al more alternatives instead of one single government program Thank thank cogs of the time. Thank you. Thank you for that comment and getting it on the record. I'll yield back. I'll now recognize the gentleoman from Michigan, Miss Talib. Uh for five minutes.
▶ 2:48:00Thank you so much. I I think it was Mr. Ryan that said in the wake of the 2023 regional bank crisis, I'm not sure, maybe Mr. Anderson, you can confirm. We saw that this um we didn't during that crisis uh small businesses and other depositories move their money from smaller institutions to the mega banks.
▶ 2:48:19Is that correct, Mr. Anderson.
▶ 2:48:21Uh, deposits did move up to larger banks, but I I think it's unclear whether those were
▶ 2:48:27Okay. Well, I think people assume that the government will swoop in and bail out the big banks because we did it before since if they fail, they might take the rest of the financial system down, right? So, we come in and swoop in and bail them out. My residents still talk about the bailout. Um, so people count on this implicit government support for the mega banks. Um and they see them as a safer bet because the government can come in and swoop in and save them. Correct. Nobody wants to admit that. It did happen actually. Okay.
▶ 2:48:58Um we when we see deposit inflows to the mega banks, doesn't this only worsen the already massive consolidation we've seen in banking sector in recent decades? Mr. Anderson.
▶ 2:49:10Uh I think that there is a move to consolidation amongst the banking industry as our numbers of depository institutions in the US continue to decline because of bank mergers.
▶ 2:49:21Okay. Um do you think isn't it dep isn't deposit insurance expansion essentially if community banks and credit unions are to compete with the biggest banks? Uh I think the incre the potential increase in deposit insurance adds a benefit to customers um uh by by virtue of them leveraging these non-interest bearing transaction accounts.
▶ 2:49:48Well, one proposal for a fairer system would have would folks are proposing having largest banks preund the um orderly liquidation fund and then they would they have to pay an upfront fee for let's be the implicit government subsidy that's there to protect them. So, Mr. Anderson, what what is an OOLF and why do we have preunded deposit insurance? Pretend our parents are watching and you have to explain this to them.
▶ 2:50:15Yeah. So um my general sense is that the depository institution fund serves uh a unique purpose in serving as a backs stop for all depositors. I think the proposals in the in the Senate currently that isolate the large banks should take an approach where it's an equitable uh level playing field so that
▶ 2:50:42so we're telling mom and dad at home that we're isolating the big banks from having to preund this correct in
▶ 2:50:48I think the ultimate impact on doing that is on the customer because we we don't want to disadvantage certain small and medium-sized businesses from choosing a community bank over choosing using uh a a large bank. If the intent of the legislation is to provide protections for those customers, you should do it regardless of where they choose to bank.
▶ 2:51:09Gotcha. Um let's turn into to another type of uninsured deposit, stable coins. Stable coin issuers are basically banks. They really they really are shadow banks. Um and but stable coins are not backed by deposit insurance. With the passage of the Genius Act, crypto exchanges can now offer customers so-called quote rewards that look very much like interest paid by a bank. So, Mr.
▶ 2:51:34Anderson, when people can earn interestlike rewards on their stable coins, doesn't that incentivize the expansion of what is basically uninsured
▶ 2:51:43I'm not sure if I have a good answer to that question today.
▶ 2:51:46I'd say yes. You'll see. Uh, Mr. Isn't this potentially destabilizing um our regulated banking system right now by diverting deposits from banks into stable coins?
▶ 2:51:58Uh I think it's less than optimistic to take deposits from banks and and put them outside of the regulated financial system in large part because banks aren't able to lend with those with those deposits. So, last question. Are there any other uninsured deposit equivalents issued by Shadow Banks that we should be concerned about?
▶ 2:52:21Uh, not that I know of.
▶ 2:52:23Okay. Thank you. I yield.
▶ 2:52:26The gentleoman yields back.
▶ 2:52:38I'd ask unanimous consent to submit statements for the record from various trade groups who have either endorse my uh deposit insurance reform bill or otherwise urge our committee to take bipartisan action including community development bankers association representing CDFI banks, midside bank coalition of America that is NBCA independent community bankers of association American Bankers Association, America's Credit Union, and prior
▶ 2:53:08testimony from National Bankers Association, who also endorsed my bill.
▶ 2:53:13Without objection, the gentleoman from California, Miss Kim, is now recognized for five minutes.
▶ 2:53:20Thank you, chairman, and ranking member for hosting today's hearing. And I want to thank all the witnesses for joining us today. You know, I'm the only California and uh western state Republican on this House Financial Services Committee. So, the crisis at the Silicon Valley Bank was extremely concerning. The this is the first year of my second term when I was uh you know assigned to serve on this committee. We had to deal with that.
▶ 2:53:47So in the following months, I've reached out to the banks in my district and I worked on legislation and letters targeted at bringing some stability to the banking system and transparency as to the decision-making process that was made by the Biden administration's regulators. And as we evaluate numerous potential solutions, it is important that we carefully think through each of them rather than rushing for a quick fix. Right?
▶ 2:54:17So I want to ask you a question, Mr. Ryan. Uh during the Silicon Valley bank crisis, uh did your bank receive any deposit inflows or new account
▶ 2:54:30We did receive some new deposits during that time frame. There were certainly lots of discussions being had by many business owners. We also lost some deposits uh to some of the large institutions. Uh some of those boards of directors uh whether it be nonprofits or for-profit felt like they had a fiduciary obligation and they felt like there was a perceived safety in moving money to the largest institutions.
▶ 2:54:54That goes to the question I wanted to ask like you know you you did have some conversation with your um colleagues and when you and your uh colleagues ask potential depositors as to why they chose larger banks over banks like yours uh how often was that reason related to deposit insurance coverage limits?
▶ 2:55:15That was the primary reason they were moving deposits were the perceived safety of being at a larger institution. Mhm. You know, I heard a lot about how globally significant banks received an increase in deposit inflow during that 2023 crisis. However, I'm curious as to what deposit movement looked like across different bank sizes and how much of it remained within the community and the midsize uh bank range.
▶ 2:55:41So let me ask you Miss Castillia uh I know that in the case of your bank citizens uh bank of admon you were actually opening new accounts during the 2023 uh that crisis right so can you tell us um when you discuss with your depositors as to why they were attracted to citizens bank what were the reasons they gave you for wanting to open accounts with your bank
▶ 2:56:07thank you for that question ma'am um we were very transparent and in front of the communications um sharing non non-public information with both our customers and the public in general. So we had current customers moving accounts to us and we also had inquiries around the nation of banks of consumers and businesses wanting to bank with us.
▶ 2:56:25We actually had a a technology provider provide us a discounted account opening solution so that intern so nationally um individuals could open accounts at Citizens Bank of Edmond because we were seen as such a trusted source during that time of crisis. Well, it's clear that your leadership at the uh citizen bank made a clear difference. So, thank you for that and I want to commend you for the national standard that you set during that uh difficult time.
▶ 2:56:51Um, so let's look at some of the uh potential solutions that's attached to today's uh hearing regarding collateralization, custodial deposit, reciprocal uh deposit reform. Uh, is it possible to combine those potential solutions with an increase in deposit insurance as well?
▶ 2:57:10Um, well, ma'am, I just don't see with those solutions that a deposit insurance increase is needed because I have more than enough availability with reciprocal deposits. I mean, I can get hundreds of millions of deposit insurance accessibility to individual customers. Um, so it's and it's a very safe network that's integrated into our solutions that it really can create a competitive advantage over larger institutions in our area. You know, one potential solution that I have to reform community banking is the community banking lift act.
▶ 2:57:40And this bill will reduce the community uh bank leverage ratio to uh from 9% to at least 8% or even lower. Right. So, Miss Castillia, how do you see the Community Bank Lift Act uh as helping the community bank ecosystem and potentially preventing future bank
▶ 2:57:59Yes, ma'am. Thank you for that question. I'm not I don't know a lot about the specific act, but the community bank leverage ratio reducing that will allow us to deploy more of our funds into our community. We currently today are selling 30 million of our deposits about 10% of our um asset size to oneway sell because my my current community bank leverage ratio number is so high I can't deploy them locally. Risk weighted assets are also puditive for small banks and so that's another way to consider as
▶ 2:58:28Thank you. I yield back.
▶ 2:58:29Gentleoman yields back. The gentleman from California, Mr. Licardo is now recognized for five minutes.
▶ 2:58:35Thank you, Mr. Chair. um appreciate the testimony of our witnesses today. I [clears throat] think I'm coming around to the view that we very certainly need better data uh certainly about the the depository inventory that many banks have and understand what percentage is insured and uninsured and it seems to vary quite a bit uh by size and type of bank. And I I um also [clears throat] appreciate that the need for a permanent tag program. Um Mr.
▶ 2:59:02Harlo suggested I and I I I think ranking member Waters has a good bill on this and I look forward to seeing how we can create a tag program that doesn't require congressional authorization to be activated. I I guess I just want to focus on this issue about a targeted increase in the FDI.
▶ 2:59:19Um and and I appreciate that this question moral hazard comes up and the logical answer to respond to how do we mitigate moral hazard is uh let's try to limit this to non-interest bearing accounts. Um I think Mrs.
▶ 2:59:36Castillia, both in your statements as well as your your written remarks, um you allude to the fact there are other ways of compensating depositors and I think you you mentioned, you know, inflated yields on linked accounts, sweep accounts, rebates, rewards, checking, loan discounts, service credits, um toasters, tickets to Bad Bunnies, concerts, whatever it might be.
▶ 2:59:59Um, we know that there could be ways of incentivizing folks to try to uh take advantage of this much higher limit. I guess I'm trying to understand from those who advocate uh lifting the cap in some way, even on a targeted basis, uh how do we prevent banks from engaging in that kind of activity that would encourage a rush to the more insured deposits? Any thoughts? Yes sir.
▶ 3:00:30I don't see that as a risk today. I think the vast majority of banks operate uh you know where where we do have multiple deposit accounts for relationships. I don't see that um increasing the limit creates a new set of risks that we can anticipate in terms of you know linking these accounts together and using other incentives. It certainly doesn't happen at Old National Bank today and I'm very familiar with all the midsize banks and I don't see that as a as an issue either.
▶ 3:00:59Ignoring seems like a strange defense to that type of situation. So I think that there would have to be additional policing and regulation and oversight if you're introducing restrictions related to this type of account and I don't think anything any of us really want Uh I I agree that defining the type of account through regulation is is critical so we don't have a gaming. So I agree with with Miss Castillia.
▶ 3:01:23Um but I also think that it's important to understand that banking relationships are very sticky, right? uh if you run an auto body shop or a nail salon or a dry cleaning service, uh your choice of bank is probably going to be decided based on the locality of the bank and proximity to your home or to your business. Uh so there's a pretty defined universe of institutions for the types of customers we're talking about.
▶ 3:01:51We're not talking about John Deere and Amazon and Home Depot that have global multinational businesses, but for the small and medium-siz enterprises, the 501c3s, the religious organizations will generally bake uh uh bank local and those deposits within those institutions are going to be pretty sticky.
▶ 3:02:11Thank you, Mr. I appreciate the point. Um, as we're thinking about this, really, we're talking about who pays. Ultimately, there are transactional costs involved. Um, there are market-based solutions to address uninsured deposits and we've talked about what those are. You know, HFH be letters of credit, private insurance, reciprocal deposits, broker deposits, etc. Those impose costs. Uh, we know on transaction fees. I think Mr. Castillia referred to 12 and a half basis points on reciprocal deposits.
▶ 3:02:40Uh now if we look at the alternative here which is or one alternative which is the the increase an FTI then there are clearly fees that have to be paid. Is there any way we can get our arms around is there any data out there any studies help us understand in the aggregate? Are we stuck with more costs uh under the current system or under a regime in which we are lifting FDI and imposing these fees on banks?
▶ 3:03:10I can speak to the midsize bank perspective on this uh you know we believe even if there's a modest increase in the insurance costs and we estimate that could be somewhere between two to five basis points. The alternative is we have to go to national markets or wholesale markets or broker CD markets and raise money at 25 to 50 basis points. So we go from two to five basis points for additional insurance cost up to 25 to 50 basis points. And I just want to make one quick point on your last question.
▶ 3:03:4040% of the deposits are held by the nation's largest the GIB institutions and we assume those are all fully insured.
▶ 3:03:47The gentleman's time has expired for been provided for the record. The gentleman yields back and the gentleman from Nebraska, Mr. Flood, uh, who's also the chair of the housing and insurance subcommittee is now recognized for 5
▶ 3:03:58Thank you, Mr. Chairman. Before I start my questions, I've got to comp compliment Mrs. Castillia. Back in 2019, I was trying to remodel the downtown of Northfor, Nebraska, and I looked at who in the nation had done the best job with their downtown. And this community banker from Edmund, Oklahoma, hosted me for the better part of a day. had no idea we'd ever be doing this. She was gracious with her time.
▶ 3:04:22She's not just a community banker, she's a community advocate, and we can all be very proud of what she's accomplished. And so, it's nice to see you this morning. With that, let me begin my questions. We all remember the uncertainty right after SVB failed in First Republic Bank. Thankfully, we were able to avoid the worst possible outcomes during that time of instability. And I really credit both the Republicans and the Democrats on this committee.
▶ 3:04:48I remember a phone call with the Treasury Secretary, our former chair Mckenry, obviously our vice chair at that time, Mr. French Hill, uh our ranking member Maxine Waters. There was a lot of uncertainty and we stuck together as a nation to prevent a contagion from infecting our entire financial system and he gave me a lot of confidence that Congress can take on tough problems.
▶ 3:05:12Um, so in the leadup to those bank failures, there were lots of deposit flows specifically from the troubled institutions like Silicon Valley Bank and First Republic. This makes sense. When depositors start getting concerned that an institution is in poor financial health, they often pull their money. But our conversation today contemplates broad sweeping changes to deposit insurance that will have implications that will affect all institutions.
▶ 3:05:36In order to justify a particularly large increase in deposit insurance, especially for just one type of account, non-interest bearing, I'd be interested in a better understanding of how deposit flows have been moving over the last several years. First question, if you could be brief in your responses, uh this is for all of you.
▶ 3:05:54Aside from deposits that left the specific institutions that failed in 2023, have you seen evidence of further deposit flows from other institutions toward a perceived the perceived safety of of a GI bank or a government money market fund? We'll start with you, Mr. Ryan.
▶ 3:06:11I would say the long-term trends are to take money out of non-interest bank accounts and move them in interest accounts. And we've also seen long-term trends where the biggest banks are only getting bigger. uh and and you might call that around uh maybe it's a product or technology issue or maybe it's a perceived safety issue, but the long-term trends are clear. The bigger banks only are getting bigger.
▶ 3:06:32Thank you, Mrs. Castillia.
▶ 3:06:34So, good to see you again, sir. Um our core deposits have grown 26% since the Silicon Valley bank failure. We have zero broker deposits, zero listing services deposits. I only have 5 million of long-term um loans from Federal Home Loan Bank. We um are selling $30 million in deposits. I would love to deploy in my community and we've seen the growth be very substantial and strong.
▶ 3:06:56Thank you, Mr. Furlow.
▶ 3:06:58Our community banks in the state of Texas manage very well the es and flows of of the economy. But when these systemic uh type types of issues COVID and certainly the SVB crisis occur, we have absolutely seen outflows from our community and midsize banks into the largest of institutions.
▶ 3:07:14Mr. Norquist, you want to provide a
▶ 3:07:16what they said?
▶ 3:07:17Okay. Uh I think it's well evidenced that there were outflows from midsize and regional banks to the larger GIBs during the banking stress of 2023, but I think that was somewhat isolated and I don't think it's carried on beyond that that stress event.
▶ 3:07:33Okay. So maybe this is more for Miss Mrs. Castillia and Mr. Ryan. Are you sensing some anxiety among some of your large larger depositors? Are they thinking like, "Okay, I've got my payroll account at the bank in Edmund or a bank of yours, Mr. Ryan, in Texas." Are they thinking about that? Are they expressing anxiety? Are they they are they asking questions about the special insurance you can buy that they pay for over and above?
▶ 3:07:58We use very little uh deposits in their reciprocal networks. I think in in periods of stability, they are not asking those questions. It's only in periods of time where there's great instability and great uncertainty, I think those questions get asked. We win because we have closer relationships in our communities than the large
▶ 3:08:18Sir, we don't wait for them to ask us questions. We offer them the solutions when we see that they're exposed with uninsured deposits. And our tellers, our personal bankers, all are very well equipped to talk about reciprocal deposits and how customers, whether it's through account structuring or using the reciprocal system, can maximize their insurance coverage. Well, I'll tell you what I like about this hearing is I like the idea that we're talking about these regionals and these community banks. I don't want to live in Europe with one or two banks in a country.
▶ 3:08:45I want to live in a world where we have state chartered banks, we have federal chartered banks, where we have community banks, regionals, and gibs. That's the magic of our financial system. And so, while we may disagree on a path, let's stay focused on making sure we can maintain our diversity. With that, I yield back.
▶ 3:09:01The gentleman yields. Without objection, I am entering into the record a letter from 11 conservative groups raising opposition to increasing FDIC deposit The gentleman from Texas, Mr. Green, who is the chair of the uh subcommittee on oversight investigations, is now recognized for five minutes.
▶ 3:09:21Thank you, Mr. Chairman, and I thank the ranking member, and I'm grateful that we're having this hearing. I think it's exceedingly important. Um, let me start with an expression of gratitude for posting HR 3716, the systemic risk authority transparency act. I think this is an important piece of legislation because it will allow us to have timelines similar to those that we had after the failure of some significant institutions.
▶ 3:09:52Having said that, um, Mr. Ryan, um, you do believe that we should raise the FDIC limit. Is this correct?
▶ 3:10:03And have you announced a number?
▶ 3:10:06Well, we've done some surveying of midsize banks across the country, and we believe the number of around $10 million would cover 90% of uh those total accounts. Uh, if we raise the number to $20 million, for example, uh we pick up about another 5% to 95%. and u you would differ with Mr. Norquest I take it Mr. Norquist seems to think that this can be handled by the private
▶ 3:10:34I I think that's concentrating risk in unknown sets of entities uh whether it's reciprocal networks or private insurance. I think that creates a whole new set of risk that we have not quite evaluated yet. And Miss Castillia, um, I it seems that you're okay with raising, but you're not sure that it's the proper thing to do right now. I'm not sure that I I've characterized your position appropriately. So, if I have mischaracterized, would you please help
▶ 3:11:03Thank you, sir. I I believe that any change should be data driven and that we should look at uh what data is telling us and then let that drive policy. Um, right now when I look at my customer base, I'm able to use market tools right now to cover just about any deposit that walks in my door. Um, and utilize reciprocal networks, pledging securities, or using a letter of credit from the Federal Home Loan Bank. I can take care of any customer. I also pay them interest.
▶ 3:11:32And so for me, I would not be moving my customers to non-interest bearing accounts. I I view myself as a trusted adviser. We're in an interest rate scenario right now where interest rates are higher. So when a nonprofit comes to me and they've got a million dollars, I I'm going to counsel them on have earning interest on that.
▶ 3:11:48We're going to have to move on. Thank
▶ 3:11:50Mr. Furlow.
▶ 3:11:52Yes, sir. Thank you, Congressman.
▶ 3:11:54Yes, sir.
▶ 3:11:55Um, looking at what we did as we put together our EAG proposal and our two-step proposal was to go back to 2023 and deconstruct what was literally happening at that time. And I think uh you you may recall um everyone was asking the question, do we need more than $250,000 in coverage and and raise that limit? We were talking about maybe half a million 750,000 a million. The highest number I heard during that time frame was two $2 million.
▶ 3:12:24So that the question that then becomes is well where is the right threshold? And I don't know that we know the answer to that which is why again we're proposing the the E tag proposal which is a two-step process. Let's get a backs stop in place so we can figure out where the threshold is and where we can set uh essentially a a fair uh uh threat
▶ 3:12:47Banks of every size.
▶ 3:12:48I think I have your point. Let me move on. Mr. Norquest, no disrespect, but I know your position. So, I'll move to the next person if you don't mind. Uh sir, your position, please. Yeah, I think a change to the regulatory framework for deposit insurance is incredibly important to study and it should be empirically based whatever the the threshold amount is. Today we only have a single system of deposit insurance for uh a a handful of different account types at $250,000.
▶ 3:13:20But the conversation we're having now is a separate classification of non-inbearing non-interest bearing transactional accounts. And I think
▶ 3:13:30let me do this because I time is limited and I've got 50 seconds. Permit me to ask you Mr. Anderson. Do you think that this can be accomplished with the process that Miss Waters has proposed? Because in the rule making process, you do acquire empirical evidence before you make the rule. Uh I think the propo proposal that ranking member Waters has put forward is incredibly thoughtful and I think there are components of it that should be applied directly.
▶ 3:14:00Uh I I I think the emphasis on a study and ultimately allowing the FDIC who hasn't yet weighed in on this debate uh to provide a critical recommendation on what a potential increase for these non-interest bearing transaction accounts would look like.
▶ 3:14:16Well, thank you. I am supportive of the um legislation proposed by Miss Waters. Uh I'm hopeful that we can move this legislation. There are many community banks that do believe they need a higher limit to attract business customers. Thank you very much. I yield back. The gentleman yields. The gentleman from New York, Mr. Lawler, is now recognized for 5 minutes.
▶ 3:14:39Thank you, Mr. Chairman. I'm glad that we're here having this discussion today because it's critical that we reflect upon the impacts of potential reforms. While the actions of the past few years certainly warrant this conversation and the search for possible systemic improvements, we must ensure we're acting with proper data and a thorough understanding when a changing when changing a system that as it stands is generally well capitalized and successfully uh in fully ensuring over 99%
▶ 3:15:10of deposit accounts uh at US financial institutions. Mrs. Castillia, when you are dealing with customers at a bank like yours, be they individuals, families, or businesses, I imagine there are merits to having uniform deposit insurance for everybody that is easy to understand.
▶ 3:15:28So if we do pursue uh some of the proposals that are out there that would change that, what do you think the consequences would be if it became a two-tier or deposit insurance uh level based or on whether or not the account holder is an individual, family or
▶ 3:15:45Yes, I believe this becomes quite confusing both for the consumer, the business person as well as the bank staff that's trying to stay up to speed to calculate real time what the deposit coverage is for particular accounts. There's so much complexity with how we small businesses set up business accounts as well and it can be very difficult in our systems to be able to track that appropriately.
▶ 3:16:06Additionally, all of these um the reporting through our call report system um is not adequate to be able to have this bifurcated system of having the non-interest bearing accounts covered. I I fully support some type of indexed or um as we an analyze an overall look at deposit insurance to see if the adjustments need to be made. Understood, Mr. Furlow.
▶ 3:16:28If we are going to consider proposals to target certain kinds of accounts with higher deposit insurance limits, we need to ask ourselves what the purpose of deposit insurance is and who we are seeking to provide extra insurance to. Uh, with less than 1% of insured deposit accounts over the current $250,000 limit, the overwhelming majority of Americans have a 100% deposit insurance coverage.
▶ 3:16:56Can you tell us what kinds of deposit accounts you think policymakers should be targeting and why? Well, again, when we looked at uh our proposal on on EAG, we went back to 2023 and it was those those transaction uh accounts that that we thought that we should look at because that's primarily where the issue was at that time. So, we deconstructed that that that event and that's why we focus on the transactions.
▶ 3:17:21Uh Mr. Norquist, same question.
▶ 3:17:26Again, there are opportunities in to have private insurance and we should look at those. I think when we went from 40,000 up to 100,000 coverage, we had the disasters of the SNL. I'm not sure that increasing the moral hazard of guaranteeing some uh deposits is a good idea. I mean, we it hasn't worked in the past. It's gotten less help.
▶ 3:17:52Mr. Brian, were we to target specific kinds of accounts uh with increased taxpayerbacked insurance coverage, there would be some pretty big incentives to uh mischaracterize the type of accounts you own to benefit from the higher coverage. Uh bank regulators would have to craft new regulations and reporting requirements to target coverage and bank supervisors would then be tasked with a new duty of doing due diligence to be sure that no one was gaming the system. How would you address that?
▶ 3:18:21Well, I I would start with uh insurance is covered by the banking industry. The these are the fees. These these are not taxpayer funded accounts. This is covered by our industry. Um and we have a whole host of accountants and regulators and more regulators I can count on one hand that overlook our shoulders each and every day. So I think banks uh generally wake up every way and try to do the right thing and then we have a whole host of people sitting around our circle uh ensuring we're doing the right thing. Miss CIA, thoughts?
▶ 3:18:51yes, sir. I I think that this is a really difficult u policing job that we're going to be giving regulators. We don't want regulators looking over our shoulder every day to see if we're doing the right thing. Um, and we certainly don't want to ignore if there's going to be transitions of utilizing the accounts
▶ 3:19:08Appreciate it. I yield back the remainder of my time.
▶ 3:19:11The gentleman yields. The gentleman from Tennessee, Mr. Ogles is now recognized for 5 minutes.
▶ 3:19:17Thank you, Mr. Chairman, and thank you to the panelists for being here. This is an important topic. I do think any anything uh that we do should be data driven. You know, I'll quote Reagan uh you know, I think the scariest phrase in the the English language is I'm from the government. I'm here to help. And I think sometimes we tend to overreact and overregulate and and make a problem otherwise worse. So that being said, I think caution, a cautious approach and trying to understand those unintended consequences are incredibly important.
▶ 3:19:46You know, the goal of helping community banks is a lotable one, but an analysis is needed to my point to ensure any increase does in fact help community banks. And if the goal is indeed to support community banks, then the inclusion of regionals and super regionals is outside the scope and potentially counter to the goal. Miss Castillia, I know you've answered this question, but I just want to emphasize during the the deposit flight of SVB, did you experience deposit flight?
▶ 3:20:15I did not. I experienced deposit
▶ 3:20:18and then do you believe the increase in deposit insurance will help community
▶ 3:20:24For the I it will help some that have exposures on non-interest bearing accounts, but for most community banks, from what I hear from my peers, no, it will not. And to to kind of target something that you just said that the banks have exposure, that's a management issue, is it not?
▶ 3:20:41That that is whenever we see high exposures to uninsured deposits. That is a decision to be made. There's plenty of marketplace tools to fully cover um a customer's exposure on on if they're
▶ 3:20:52Miss Castillia, staying with you. I want to ask about the potential for moral hazard this proposal could potentially create. You said in a recent op-ed that raising the coverage cap would invite moral hazard. You mentioned that such behavior would distort competition and weaken the discipline that deposit insurance is meant to preserve. Could you elaborate and explain that?
▶ 3:21:12Yes. It's current market tools exclude troubled um financial institutions. Those with camels reigns four and five. They care frozen in their participation from federal home loan bank letters of credit pledging lines of credit as well as any participation in the reciprocal
▶ 3:21:26Yes ma'am. Should community bank institutions like credit unions have a differentiated approach to premiums or oversight given their typically lower risk profiles and cooperative ownership
▶ 3:21:37I I don't believe any differentiation between um institutions. I think we need a standardized system throughout the the
▶ 3:21:44and they coming right back at you. In your experience as a community banker, do you regularly observe small businesses clients with deposit account deposit accounts in the range of 10 million? Do you regularly hear from small businesses that need 10 million in deposit coverage? That
▶ 3:22:00there is a a there are we have a large oil and gas industry in Oklahoma. There are fluctuations in accounts and we're able to use reciprocal deposits and sweeps so they're able to turn interest whenever they have those large balances.
▶ 3:22:10So you have a solution to the issue?
▶ 3:22:12Yes, sir.
▶ 3:22:13Mr. Norquist, in a recent op-ed in the Hill, hello. By the way, you said every dollar spent on premiums to the FDIC is a dollar not invested in economic growth. You stated that the estimated costs are huge. The FDIC would need to raise more than 10 billion from banks immediately and would take more than 1 billion in premiums out of the banking system annually. You want to expand your thoughts and we've got about a minute 40 to have the back and
▶ 3:22:38Okay. Well, earlier I said the FDIC taking money from one business and giving it to another isn't a tax. Try not paying it. Okay. It is a tax. It's mandatory. You don't get a choice. Um and so raising taxes always comes out of all the other things you might do. Um like you know be able to anyway it it's a cost that's imposed on the people who are investing in that bank. They pay it.
▶ 3:23:06Mr. Muer uh kind of asked you and his he ran out of time talking about so what are the solutions if this is not the right approach Mr. Norquist, what would you what would you propose if you we gave you the pen, gave you the pad, and said fix it. What would you do?
▶ 3:23:21Well, first I'd reduce some of the barriers that you have to allowing all of the various alternatives, which some people have poo pooed here, but which are private sector voluntary agreements where the market says there are different ways to do this. Both insurance in my written testimony, there are examples from various states where they have done that. Massachusetts has has set up a fund that's that's voluntary and has been operating since the 1930s. Uh it doesn't have to be mandatory. It doesn't have to be the federal government. It doesn't have to be this big.
▶ 3:23:51Yes, sir. And I just I just want to underscore, Mr. Chairman, that as we why this hearing is so important. You have different banks, different sizes, uh different regions, different asset and exposure allocations. So, we we needed to be careful trying to come up with a one-sizefits-all.
▶ 3:24:08and perhaps whether it's awaited or what, however we land this plane, but it's important and I think it's an important conversation and I respect and appreciate all of your opinions, but I what I really wanted to do is emphasize that this is a very complex issue. You mentioned the SNL crisis. You know, what they did back then didn't fix the problem. One would argue that it made it worse and we have to be careful as we move forward. Thank you, Mr. Chairman. I yield back.
▶ 3:24:32The gentleman yields. The gentleoman from Texas, Miss Dela Cruz, is now recognized for five minutes. Thank you, chairman, and thank you to the witnesses today. We're almost at the end of this hearing, and I greatly appreciate your time and and sometimes repetitive uh responses, but it is important that each of our districts hears our clip of exactly how this affects them in their communities.
▶ 3:24:58I represent and have the honor of humbly representing representing deep south Texas where my area is largely rural and so small community banks are the backbone of what helps us thrive.
▶ 3:25:15my district is largely Hispanic, where uh small businesses are important and where funding those uh firsttime business owners like myself are very very important. And I understand that this is such an important conversation.
▶ 3:25:38And as I've listened throughout the day to your thoughts and your responses, I can see that there is a diversity of of suggestions that some conflict and uh some not so much.
▶ 3:25:54Um, this tells me that we need to keep talking about this, but more importantly, we need to find a solution immediately because everybody is affected from small banks to our large institutional banks. Um, I'm pleased that all of you all are here, but my fellow Texan, Mr. Furlow, thank you for being with us today.
▶ 3:26:18uh we do know each other from having ongoing conversations uh when it comes to community lending. So I would like to bring the perspective of the banking industry from Texas to the national stage. Mr. F furlow.
▶ 3:26:36Can you explain how a tag program or a deposit increase would have and could have helped during the 2023 SVB and signature bank
▶ 3:26:50Yes, ma'am. Our two-step proposal that we have with six other states is all about looking at 2023, dissecting that, and working our way through to ensure that we address those conditions that were taking place in South Texas.
▶ 3:27:04Uh, as you mentioned, our our community banks are absolutely uh an integral part of the lifeblood of the economy and um in 2023 when we had a systemic issue through no fault of their own, our community banks were impacted and uh our proposal about having tag is to do two things.
▶ 3:27:26Number one is to ensure that there is a backs stop that is in place today um that we can quickly implement in a non-bureaucratic way so that banks of every size and wherever a depositor chooses to bank that they are safe for a brief amount of time so that we don't get into the issues of moral hazards. So that's number one. That's the first step.
▶ 3:27:50The second step is to thoughtfully consider all of the issues that we've talked about today to include where should the thresholds be? U because we need to know and understand simple questions. Um, number one, what are we trying to achieve through increasing thresholds? Number two, who is going to pay? And number three, how much? Those are all basic questions that need to be answered in all these discussions. But as you've seen today, um, there's not agreement. There's not consensus.
▶ 3:28:18And if that is the case, it makes the argument for ensuring that we have a tag program for emergencies, for systemic risk on the front end while we can work through these issues and gain consensus. So, as a small business owner myself, I received my first business loan from a community bank, a community banker that knew me, Monica, the individual and the integrity in which I was going to run my business and thus replay repay the loan.
▶ 3:28:49So, it sounds like and I would like to acknowledge Miss Castillia. Congratulations. you go girl for having uh your bank and being the leader femaleowned uh businesswoman and that of a community bank. I applaud you for this effort and for your success.
▶ 3:29:06Um, you've said over and over again how in these really trying moments, your bank held the line and you did not have some of the effect that SVB banks and other small banks may have incurred during this troubling bank time.
▶ 3:29:26And so I I am always protective of our community banks because I know how they helped me personally and help other Hispanic small business owners in South Texas. So I will I will write my question to you and I hope that you will answer. Thank you. I yield back.
▶ 3:29:49The gentleoman yields. The gentleman from Texas, Mr. Gonzalez, is now recognized for five minutes.
▶ 3:29:54Thank you. Uh thank you Mr. Furlow for being here. Uh great to see you. I I have a just a few brief questions for you. Mr. Furlow. Does a onesizefitsall increase in insurance coverage risk amplifying concentration at the largest institutions rather than supporting relationshipbased bankings and communities like those in South Texas and other other uh banking deserts, if you will, across the state and across the the country. Congressman, that's what this this this discussion is all is all about.
▶ 3:30:24Um, you know, as I consider what full-scale modernization should look like. Um, if we're if y'all are familiar a little bit with liquid dynamics and a and a tanker truck, there are they're essential. They're there. There's these baffles that stand in between so you don't have slush across the the the entire vehicle that that makes it unstable. And so, we need to look at how we approach the future of deposit insurance. And so many of them are are here today, but we just don't know.
▶ 3:30:53But the to ultimately answer your question, we need to ask what the future looks like. It's 1933. Um, we've had discussion about technology and advancement of payments and and the these types of things. All of that needs to be considered. But in the meantime, we've got to have a backs stop.
▶ 3:31:09We can't have our community banks in South Texas where you and Congresswoman Dela Cruz uh their their small businesses are so dependent on community banks and in 2023 it was not fair that they didn't receive the same type of coverage even though they paid premium.
▶ 3:31:25That's right. I'm especially concerned about community banks and regional banks. Uh my next question is for Miss Castella. Uh my concern is that even well-intentioned deposit insurance reforms could unintentionally harm uh people in banking deserts, as I mentioned, in places like that I represent and other places around the region. Um and uh working Americans who often have under $1,500 in their accounts.
▶ 3:31:49Rising assessment payments and compliance costs may push many smaller institutions to raise fees, cut services, or increase account minimums. A lot of it that's already happening. um effectively pricing out workingclass families already strained by policies like the Republican one big ugly bill and recent funding bill that failed to extend the ACA tax credit which will make healthc care unaffordable for nearly 130,000 South Texans.
▶ 3:32:17And when that happens, people don't stop needing financial services. They're turning to higher cost alternatives that aren't FDIC insured. The question is, what safeguards can we put in place to ensure that these that deposit insurance reform does not increase costs for working families and underbank them and push them away from regulated of regulated banking system that's been so effective for so long?
▶ 3:32:42This is a wonderful question. Thank you for answering. I met and married a South Texan, so I just have to give a shout out to
▶ 3:32:48shout out to South Texas. He's in the room. U but this is what I I see every day. I sit in my lobby. I talked with our our consumers and our businesses, small businesses, and it's about that trusted relationship. So, I would just be so careful, and this is what I'm scared of, that we might do something that hijacks that relationship so that we're leaning on more the government for trust rather than that trusted relationship that a community banker can
▶ 3:33:12Great. Thank you. And and I'll have I'll have one question to to the panel and anyone can answer it. What are we doing to try to find ways, especially for community banks, to find ways to increase deposit coverage under when it's just one or two or a couple that are depositing and they want to deposit, you know, a million or $2 million and there's just not enough coverage. What ideas out there are out there to give give banks cover and allow people to feel comfortable making larger deposits?
▶ 3:33:41Yes, sir. I do this every day. So, if someone has increased um if they have a deposit that's over the um the FDIC insured amount, our team, our tellers, our personal bankers know that we have tools available that we will proactively offer if they want to have full coverage. We do this with nonprofits and we do it with less sophisticated small businesses and more sophisticated businesses.
▶ 3:34:02So there are tools in place in the marketplace that allows that allow us to maximize deposit insurance so that we can make that even we're educating what deposit insurance is because a lot of my customers don't even understand that that exists first of all and then maximizing to really show the strength of the
▶ 3:34:18folks who are making larger deposits do understand very well and are just diversifying through many banks and and and you know I know some folks that you know they they bank with 10 local community banks in in a small town because of the concern but but uh thank you for for being being here. Thank all of you. Thank the panel. Uh this is a very important topic and hope we continue working on it. Thank you.
▶ 3:34:38The gentleman yields. The gentleman from Wisconsin, Mr. Fitzgerald, is now recognized for 5 minutes.
▶ 3:34:44Thank you all for being here. I know it's a long uh morning now afternoon, but uh and I'm trying not to be redundant, but let me start with Mr. Furlow. I know there's been discussions about moral hazard before. Can you can you just I mean there's a relationship between creating moral hazard or weakening the kind of the market discipline which is kind of what we were talking about. Is there um how do you how do you keep kind of both of those in balance would you say? Um just to make banks and depositors prudent right in the in the way they make those
▶ 3:35:14Yeah. And that's why this discussion that we're having over where the threshold should be is is is so important. Again it's not agreed to. One of the things that we did when we made our tag proposal was address a concern that was expressed by those of you in the Congress uh when we were in the middle of that crisis uh we were asking for a tagline capability and we kept hearing over and over again well what about moral hazard and so we have to design a a system that is balanced it has to address issues such such as moral hazard where that needs to be that's the
▶ 3:35:44discussion and until that time we need to back stop
▶ 3:35:47very good Mr. Norquist, I'm so glad to see that you're on the panel. C can you just talk a little bit about how the coverage that's created interacts kind of with a broader regulatory framework and what increasing those insurance limits uh does it it kind of focuses in on how the federal government is involved in the overall oversight and and I think there's a lot of us here today that are you know when you hear kind of that regulatory framework
▶ 3:36:17it's it's uh it's overarching Okay. Bank [clears throat] banking is one of the most highly regulated uh industries we have. Uh and it has periodic problems which suggests that too much government doesn't fix everything. Uh and now that we've pointed out some problems, people think more government would do the trick. I'm not sure that history uh looks kindly on that analysis.
▶ 3:36:44uh what they went we started with $2,500 guarantee and then $5,000 and then and now we're talking about 250,000 up to 10 million. uh increasing those is is not necessarily a good idea and raises real questions.
▶ 3:37:00And we've seen directly from the 10 thou from the 100,000 jump up to 100,000 what that did to the savings and loan industry and why it allowed people to to take risks that they shouldn't have or invest in their friends things or to the local union stuff that they wanted. and they ended up ruining a lot of people's lives and and creating tremendous damage uh because of the government guarantee and implicit government guarantees also can cause problems.
▶ 3:37:29We need to be clear what the government isn't doing as well as what it threatens to do.
▶ 3:37:34Very good. Thank you, Mrs. Castila. Um, reciprocal deposits are a means by which a bank can ensure at least a portion of the deposits in the customer's respective deposit accounts above the FDIC's insurance coverage limit. So, um, given your experience leading a community bank through challenging how do reciprocal deposit arrangements help smaller banks manage liquidity and serve business customers?
▶ 3:38:05Yeah. So, I used to sit with customers and we would go through call reports to see where where they could place their $250,000 around the community and have it safe. Reciprocal deposits allow us to have a technology platform where we can do this more automated and that they can have one entry point with me to be able to access multiple banks. Um, so they have this trusted relationship with their banker and they're able to identify which banks they would like to exclude.
▶ 3:38:29The great thing too about the reciprocal network is it automatically freezes out uh four four and five rated camels rated banks. So troubled institutions can't go there to raise more funds going to the moral hazard issues where if you have FDIC insurance you could potentially have increasing exposures at troubled institutions and increase um the exposure to the diff if there's a failure. Um and so I'm able to use it.
▶ 3:38:52I there's really not an amount that I can't handle and I can one way sell if I can't um ingest all the deposits onto my own balance sheet. I can send that out just one way. So it's not reciprocal. It just goes one way out to the banking community and then they're able to use that liquidity for their asset
▶ 3:39:10Is there anything we should be doing that could help in your effort in the way that you handle those situations? It's a great question and I believe um this is Fendy the reciprocal bill that came that actually allowed me to have more reciprocal access without accounting as broker deposits. It's exceptionally helpful because this is organic deposits that I source that I'm able to feed into the system and having that live to the the broker deposit level the 20% of my assets was a huge um help for me and other community banks.
▶ 3:39:39Thank you so much. I yield back.
▶ 3:39:41the gentleman yields. I now recognize myself, the gentleman from Montana, for five minutes. Any reforms to deposit insurance should be well thought out and take into account a range of views. So, I I really appreciate that we're having this hearing here today. I represent Montana's second congressional district, which is the largest congressional district by land mass after Alaska.
▶ 3:40:03Now, banks in rural areas are some of the smallest in the country, but I am particularly concerned about their added costs in the long run with any potential reforms. And I'm going to start with Mr. Norquist. It's good to see you. It's been a it's been a while. Is there actually evidence that our current system and limit for deposit insurance coverage is insufficient for protecting customer deposits?
▶ 3:40:26I don't think you can make that case. what you saw recently some of the failures uh Silicon Valley the the people the government guys who were supposed to be regulating it saw the problem highlighted it and it wasn't acted on it wasn't a question that there wasn't enough insurance thank you move on to Mrs. Castillia, you know, one of the subjects of debate about deposit um uh deposit insurance is its costs.
▶ 3:40:53Most often this is focused on the costs of increased assessments on banks and some have advocated for a policy of exempting small banks from any special assessment assessments needed to finance the deposit insurance fund to cover newly insured deposits if the limit is raised, but only for 10 years. So, will such exemptions truly shield small banks like yours from the cost of increased assessments in the long term?
▶ 3:41:17I don't believe so. And even there in the 10-year period, those are a lot of words to congest to see that I'm not going to get cost during that 10-year period. So, I do think that if there's a failure or if that gets squeezed and we subsidize paid in assessments to subsidize the cost associated with this increase, then it effectively I'm paying for it. So, I assume a roughly $400 million community bank probably doesn't have a lot of customers with $10 million in their checking accounts. Just
▶ 3:41:44that sir, you would be correct. I have customers with that account, but I pay them interest and so I make sure that they have their insurance and I pay them interest for that money.
▶ 3:41:53Despite this 10-year exemption, how could smaller banks like yours still end up paying for someone else's lunch?
▶ 3:41:59Yeah. So I the way that I've seen this bill and t whenever someone's explained to me how it's going to be paid for is this buy now pay later concept. Um so it also squeezes in that deposit insurance fund number very close to that 135. Well you're using money that we've already paid in to be able to subsidize the cost of that and you're also not fully realizing through this manipulation of funding math be able to say this is truly the liabilities that were exposed.
▶ 3:42:25they're they're they're booking all of that insurance real time right from day one, but then paying for for 10 years, which doesn't make a lot of sense to me. And so, if there's a failure during that time frame, the diff will not be um able to to handle that type of failure loss and I will be exposed for a special assessment as well as other community
▶ 3:42:45Thank you. So, as a small government conservative, I always prefer private market options over federal government solutions. So, um, staying with you, Miss Castillia, are there any other private market alternatives to federal deposit insurance coverage that have not been discussed today that Congress should take a look at?
▶ 3:43:04Um, the only thing that I would say is that there are multiple reciprocal networks. So, there is competition in that space and that's evolving even more so over the time. I I get called on repeatedly for bank coalitions that are showing that there's ways to share our deposit coverage to to split our customer accounts to one another and then bring out um their be able to reciprocate with other um banks. So um and I'm sure that there are others that I don't know about.
▶ 3:43:27Well, I I thank all the witnesses for being here. I know it's been a long hearing so far, but we're we're getting to the end and I yield my time now. And the gentleman from South Carolina, Mr. Timmons, is now recognized for five
▶ 3:43:40Thank you, Mr. chairman and thank you to the witnesses for being with us today. Now that operations have returned to normal, I'm pleased that the chairman and this committee are turning our attention to the future of deposit insurance and to the role the American taxpayer may need to play in maintaining confidence in the financial system of the United States. This is an issue that generates strong views in my district and I regularly hear from constituents who view recent proposals both favorably as well as those who urge caution.
▶ 3:44:05Uh for me, understanding the appropriate deposit insurance framework begins with having reliable and comprehensive data from financial institutions of every size. Only with accurate information can we form a clearer picture of the realities of today's financial landscape. As technology continues to evolve, we must use it to improve our understanding as Congress examines the programs administered by the FDIC. Miss Castillia, based on your work, do you believe we currently have sufficient publicly available data to justify major changes to the deposit insurance
▶ 3:44:33No. Simple enough. [laughter] A and if the data set is as incomplete as both you and I believe, what specific information should Congress require from regulators and financial institutions in order to properly assess both the nature of the problem and the potential effects of any proposed reforms?
▶ 3:44:51And we really haven't seen good data even how deposits were flowing in and out to substantiate that this is even needed to be able to dig further into the data. So I think we first need to see like is there a problem or are we just looking for the data for the solution? Um and so I think that really documenting what the problem is is very important and their data is available for that.
▶ 3:45:10Thank you for that. Building on your response I would like to turn to the question whether Congress should move forward at this moment. On the surface we know that approximately 99% of the 860 million depository accounts in the United States are fully insured under the current framework. That is a notable figure in today's financial environment. as this. At the same time, the proposals should before us should raise complex and nuanced issues with the data set as limited as it currently is.
▶ 3:45:35We have raised concerns that changing the deposit insurance framework now could lead us to address problems that are not yet fully understood or could cause us to overlook vulnerabilities that the available data has not yet revealed. Uh Mr. Norquest, based on the information available today, do you believe there is clear evidence of a systemic failure in the current deposit insurance structure or are the concerns being raised more reflective of isolated events rather than a broader structural uh weakness?
▶ 3:46:03Well, I think the argument for expanding it doesn't make sense. the argument for uh making sure that other alternatives and this is discussed both private insurance and the other uh mechanisms are important. Uh and every time we tax one part of an industry and this is now we're going into the business of taxing one set of businesses to subsidize another set um that ends up with all sorts of political problems, economic problems.
▶ 3:46:33There's no end to it. people who are left out of the chopping block in the first 10 years are right on the chopping block probably five years from now. I mean this moving in the direction of more government subsidy and more government guarantees rather than trying to figure out what do we do to limit the cost of government inside this and government regulations. This is a wildly regulated industry banks and that causes some of the problems.
▶ 3:47:02We need to be looking through what what don't the federal government and the states need to do in the regulatory costs that they
▶ 3:47:10We definitely need to streamline regulation at all levels. Uh I if the concerns we are seeing are primarily the result of isolated events rather than a systemic failure, what additional indicators or developments would you need to see before concluding that broader reforms to the deposit insurance framework are warranted? Mr. Norquist.
▶ 3:47:28Well, I think there are arguments for reforming it by reducing the the amount of cost that you put on people and allowing more again more private alternatives to this. Um we know that from the data today. We've seen when the amount of money that was covered went up, we had the SNL crisis um that flew directly from fixing an earlier assertion of an earlier problem.
▶ 3:47:54When the government gets more involved in something, it doesn't necessarily make it better and doesn't have a very good track record of handling that. And a bit any industry that gets into bed with the federal government is going to find that this was not the place they wanted to
▶ 3:48:09Thank you for that, Mr. Chairman, I yield back.
▶ 3:48:12Gentleman yields back. Welcome the gentleman from New York, Mr. Garbrino, who's our chairman of the House Homeland Security Committee. Welcome. You've got five minutes.
▶ 3:48:21Thank you, chairman. Thank you all to the witnesses for being here today. A little out of breath. I had to run up the stairs. Should be in better shape. You don't have to run on a golf course to the deposit insurance is a vital component of our banking system. and provide security, peace of mind, and financial stability for Americans participating our financial institutions while also promoting stable liquidity for banks to provide additional credit to individual individuals and businesses.
▶ 3:48:48Conversations between legislators and relevant stakeholders have debated the merits of feas and feasibility of increasing the $250,000 deposit insurance coverage per depositor, including the Hagerty also Brooks bill in the Senate that increases coverage threshold to 10 million. Mr. Ryan, can you give us some examples of the types of businesses that maintain a $10 million balance in an operating
▶ 3:49:10Yes. I I think the easiest examples to really understand is is really some of our largest employers in even a small town like Evansville, Indiana would be our universities and our hospitals um who routinely have those types of balances in the multi-million dollar uh category uh to for payrolls and to buy Um 2023 not only brought about the failure of SVB but also of the New York based signature bank.
▶ 3:49:37We all know SVB failed because of management and regulatory issues. Miss Castillia had the Hagerty also Brookbrooks bill or any other solutions we are considering today been in place would signature have remained solvent.
▶ 3:49:50I I don't fully equipped to be able to answer that question. I'm sorry um to I I'm that's my outside my area of
▶ 3:49:58Is there anybody uh who would like to answer that question?
▶ 3:50:02No. Based on the u the the regulatory postmortem reports, one of the main reasons why Signature Bank failed was because of a mismatch in its um uh on its on its balance sheet for long-term securities. So if there was a increase in coverage for deposit insurance that more likely than not would not have saved the bank.
▶ 3:50:27Thank you. And I know that there have been arguments made that deposit insurance legislation is meant to level the playing field. Mr. Furlow, by increasing the threshold to something like 10 million, are we overcorrecting or is the jump from 250,000 to 10 million justified?
▶ 3:50:43Well, back to 2023. Um the question at the time was what should the number be? Should it be half half a million? Should it be two million? But we were nowhere near $10 million. And what are the implications of that jump up to $10 million? I I don't think we know. I don't think we have the complete data. Look, hey, I'm I'm open to exploring what what the number needs to be. And if it needs to be at that number, so be it. But we need to have some data. We need to know who's going to pay, how much they're going to pay.
▶ 3:51:13Um, it can't just be that we've bought the washing machine, we know we can pay for it over over 10 years. It's like, okay, well, how much does a washing machine cost and what do I have to pay every month for it? Um, so we we need to look at this. And again, we're very open to any range of of of ways to uh increase the threshold. We should look at indexing within the context of regulatory reform, right? That's another option that this committee can can can look at.
▶ 3:51:37But if if we don't address the issue of being ready for a systemic crisis at any moment, um this uh this industry remains at risk and we have been since 2023.
▶ 3:51:48Is the data available? Like I mean you said we has is it there? We just haven't looked at it. I mean or do we need to
▶ 3:51:55um again as this hearing has pointed out as the Senate hearing uh pointed out?
▶ 3:52:01Mr. Ryan, did you want to respond to
▶ 3:52:03I I would just add this is not a theoretical conversation, right? This was a real crisis the country faced in 2023. So, uh, action is required here in order not face another one. In the last five years, we faced two of these. And I would, uh, just recall acting chairman Hill's testimony, his confirmation hear that he does not believe there is a substantial increase required for banks to pay for this increased insurance. So, I assume he has lots of data.
▶ 3:52:30I assume he's a pretty sophisticated uh set of analysis behind him and his own analysis suggests there's not a large increase in
▶ 3:52:37Yeah, I I I agree. I think there could be movement here and I just I'm just the 10 million seems very seems like
▶ 3:52:43I I think we're missing a lot of data about what the problem is. And if the if the problem is a systemic issue that we need to rectify, then maybe a temporary tag order is in order versus having the insurance. But I think we're really missing the data as to pointing to what is the problem we're trying to solve. All right. I I appreciate all you being here today and I thank you, Mr. Chairman, for allowing me to ask some questions and I yield back.
▶ 3:53:07Gentleman yields back. Chair recognizes the gentleman from New Jersey, Mr. Godheimer. You're recognized for five
▶ 3:53:13Thank you, Mr. Chairman. I appreciate it. Uh Mr. Norquist, uh as you know, banks are required to pay premiums to the FDI. In your recent op-ed, you pointed out that the FDIC would need to raise more than 10 billion from banks immediately and would take more than a billion from banks annually to fund the senator's proposed increased deposit insurance limit. How would this proposed policy change impact economic growth? And how do you see consumers being affected by banks paying more for premiums?
▶ 3:53:38Well, any tax on any industry um takes resources out of that and it this will hurt people who invest in banks and people who own banks uh and banks that are trying to make loans. It takes resources out of uh what they would be doing as bankers.
▶ 3:53:55So it affect consumers, right? Obviously get passed.
▶ 3:53:57Yes. Yes. It it it affects consumers for for all the same reasons. Yes. When you tax businesses, you tax consumers. Miss Castilla, since 2023, we haven't seen any bank failures of the same scale as we'd seen. However, we must continue to ensure the health of our banking system through effective oversight. We need to do everything we can to prevent another crisis, especially need to make sure that our community banks are healthy and thriving in my opinion as they're vital for local economies and local lending.
▶ 3:54:25What smart guard rail should Congress consider to be most effective in strengthening community banks like yours? Well, so many of the efforts that this committee has already undertaken will will help community banking um deregulating, allowing us to deploy more capital into our communities as loans um through lowering the community bank leverage ratio. Um whenever we look at um the bank secrecy act and the requirements there to report, that's three full-time people in my team of 70 dedicated to that effort.
▶ 3:54:54Um there's so many ways that you all are taking this effort whether it's reciprocal bill and ensuring that um I can have and participate in the reciprocal market and not be penalized from a broker deposit standpoint and then holding regulators accountable if they they should have seen the the exposure and concentration of an SVB well ahead of time and we could averted that disaster if we would have had um better regulatory oversight in that
▶ 3:55:20Have you seen it change? Do you think there's better regulatory oversight than there was a couple years ago?
▶ 3:55:25I would say that my regulatory oversight has been consistent and strong um in promoting the safety of my region. Um that's been my experience. I'm a Federal Reserve and state banking department. I have an exceptional bank um state commissioner who is deeply engaged with the health of his local community banks.
▶ 3:55:40Do you find any conflict between the regulators that you have to deal with?
▶ 3:55:44Yes, the conflict is, you know, isn't bad. You know, that's what this panel is to about. It makes us all better. And so debating and and making sure that we fully understand the risk at hand and how we're managing managing it is part of the oversight responsibility.
▶ 3:55:57Thank you Mr. Ryan. In the aftermath of 2008 uh the crisis financial crisis which an outsiz impact on the midsize regional banks as you know Congress passed DoddFrank which enacted standards and oversight to help protect our financial system critical that we continue these steps to bolster our regional banks resilience. After SVB's collapse in 2023, I advocated for additional oversight measures and a responsible increase to the deposit limit.
▶ 3:56:22If there was an increase to the dep to deposit insurance limit uh and one that that's reasonable, how would this impact regional banks business
▶ 3:56:32I think it only goes to strengthen the resiliency and the diversity of our banking system which is is needed. We've seen uh you know banking uh the number of banks since the financial crisis be cut in half. Uh and I think uh level the playing field by having higher FDIC insurance limits uh for all of those that aren't implied uh to have unlimited guarantees which is you know about 40% of our deposits are held by the GSBs today.
▶ 3:57:01Uh I think that only further strengthens the resiliency of our uh great uh American banking system.
▶ 3:57:09And do you think the the larger institutions obviously benefited at the time? Do you think that's still the case where the larger ones continue to
▶ 3:57:18I think uh there's common belief that there's an implied guarantee that these uh you know will be supported in the event of crisis or stress,
▶ 3:57:29right? And that's probably put even more stress on our regionals.
▶ 3:57:32Okay. Thanks. I yield back. Thank you.
▶ 3:57:35Gentleman yields back. Gentleman from North Carolina, Mr. Moore, you're recognized for 5 minutes.
▶ 3:57:40Thank you, Mr. Chairman. You know, for the past 90 years, uh, deposit insurance has protected depositors and helped maintain public confidence in our financial system. But the bank failures in 2023 that have been referenced already today did reveal some new vulnerable vulnerabilities in our system largely driven by the speed u at which uh deposits can now move.
▶ 3:58:01Nearly I believe $600 billion dollars in deposits fled the system in a matter of weeks and that level of volatility is certainly something that the original deposit insurance framework was never designed to handle. Uh Mr. Furwell, I'll start with you. Technology has clearly changed the nature of bank runs and the uh the stickiness of deposits. How should policymakers account for those changes as we consider potential reforms to the deposit insurance?
▶ 3:58:27Congressman, thank you for the question. We need to make sure that we can move promptly uh whenever we see particularly systemic risk. Um you all saw what happened in 2023. Um now earlier in the conversation today, we talked about the potential for AI. what happens if there are nefarious actors who decide to utilize AI to attack our economy. Um, so we have to have the ability to move quickly.
▶ 3:58:52Um, again, why we're proposing this two-step process with an emergency tag capability to put stability into the system immediately uh should we have some some downturn. U I know I believe right now roughly 99% I believe statistic that I'm aware of of all US deposit accounts hold less than the $250,000 well within the FDIC coverage limits.
▶ 3:59:16But what kinds of businesses and this may have been touched on earlier but what kinds of businesses and other account holders typically hold balances above the statutory insurance limit. You know, the greatest example I can come up with, which tend to be some of our greatest employers, especially in in uh Indiana and rural parts of Indiana are the hospital systems and the university systems.
▶ 3:59:39I mean, they routinely have multiple millions of dollars sitting in their account to handle payroll uh that happens and obviously supplies uh that are needed to buy. So, it this isn't a theoretical argument. This is real uh large employers who are vital to our communities who need these this type of And then let me ask you this, let same followup on that, Mr. Ryan.
▶ 4:00:02I know that reciprocal deposits have given community and midsize banks a tool to ensure a portion of deposits above the FDIC's $250,000 insurance coverage limit. So, how have the reciprocal deposit networks helped level the playing field for smaller and regional banks? I
▶ 4:00:19I do think there is a it is a tool. Uh less than 1% of our clients choose to use that tool. It adds complexity and cost. you know, somewhere around 12 to 15 basis points, uh, you know, to seek that that higher coverage out. Um, but I will say it works during normal periods of time. Um, it's not perfect. Uh, and most businesses don't appreciate the complexity of having have to have multiple relationships, you know, multiple sets of accounts at at these organizations.
▶ 4:00:48Uh, and and the last thing I would after in in times of stress or times of crisis, it's really hard to explain how these reciprocal networks work. And I think to the extent we keep pushing deposits towards these reciprocal networks, I think we're concentrating risk in sets of entities and organizations that we just don't know uh what's going to happen in in a time of crisis. And
▶ 4:01:09the key is to talk about these programs, not in times of crisis. It should be part of everyday discussions with our customers as their trusted advisor.
▶ 4:01:16Agreed. Let me let me ask you this question, Miss Casil. what what would be the real world impact if you will of expanding say coverage for business accounts but not for individuals.
▶ 4:01:26So this is on non-interest bearing accounts and so you're immediately shifting a business from likely being an interest bearing account with reciprocal deposits which our customers do not mind that there there is some complexity there to now not earning any interest on their account and they have 10 million plus dollars in that account. Um mechanically it doesn't really work any different. They have the same amount of coverage they're just not earning interest. The bank is saving money because we're not having to pay the network the 12 and a half basis points.
▶ 4:01:53Good. And Mr. Norquist, I have to ask you a question. It's been a while. I'm I'm still getting used to seeing you without a beard every time. I just, you know, uh but it's good to see you, sir. And appreciate uh uh your your long-standing friendship, but I do have a question for you as well, and that is you have you have advocated against raising insurance limits at all. And from your perspective, what regulatory or supervisory reforms should be prioritized first before considering changing deposit insurance levels?
▶ 4:02:21Well, in in the case of uh Silicon Valley, the regulators did highlight things, but nothing was done there. So that the failure was internal. The government had the information, didn't act um and you had the failure. Uh, I would go through the regulations that have been put on most recently to frankly look at which ones ought to be taken off, talk to all the various sized businesses.
▶ 4:02:49There's been some effort in in 2018 to do some of that to that made some real progress. Um, we've been larding up the regulations on uh banking industry uh for a long time.
▶ 4:03:04Gentleman's time is expired.
▶ 4:03:05Thank And I just want to say thank you to this is a great panel here today. All of these folks without a yield back, Mr.
▶ 4:03:10Thank you, Mr. Moore. Want to thank our uh witnesses for their expertise, their great communication skills with all of our member engagement. Want to appreciate your testimony and sharing your time with us today. Without objections, all members will have five legislative days to submit additional written questions for the witnesses to the chair. Questions will be forwarded to the witnesses for their response. and witnesses, please respond no later than December 23rd. Merry Christmas, 2025. This hearing is adjourned.