▶ 0:16:46>> president trump is trying to see his personal control of the fed and senate republicans are facilitating. Donald trump promised to lower costs on day one. Donald trump has the ability to stem the bleeding.
▶ 0:17:12Rather than change his tariff policies, reverse his disastrous energy policies and restore coverage that he has just ripped away from 15 million americans he wants to make the fed's economic scapegoat.
▶ 0:17:30It is just the next phase when the fed loses credibility businesses and consumers stop trusting it to control inflation and prices go up. It happened when president nixon bullied the fed and forced prices up for a decade.
▶ 0:18:03It happened overseas when dictators can seize control of central banks. Dr. miran failed every independence test we could think of. He could not say the words donald trump lost the 2020 election. He will be the first admitted election denier to sit on the federal board.
▶ 0:18:31He has refused to resign his current white house job. One day as serving as an independent governor would be one day too many. Let's be 100% clear. We are not voting on a four month term. Dr. miran has indicated he could sit in that seat indefinitely after his term expires in january of next year.
▶ 0:19:00His so called leave of absence is a bad joke. He will be sitting down the street from the white house and he has refused to disclose any of the communication he has with the president or white house while at the fed. This nomination sits up and obvious trump loyalty test. He knows that every vote he takes determines whether he could go back to his white house job.
▶ 0:19:29That is not independence, that is servitude. Have zero credibility with markets, businesses, and zero credibility with the public. If he's confirmed to the board under these circumstances. This nomination is a trump loyalty test. Every senator that spoke at his confirmation hearing said they support fed independence.
▶ 0:20:00I know it is not easy. When I voted against president biden's choice to run the fed. We were not sent here to serve the president, we were sent here to serve the people of our states. We are sentencing those same constituents to years of potentially higher prices and employment. Thank you. >> Dr.
▶ 0:20:28Myron brings a clear commitment to ensuring the american economy remains strong and competitive. He has guided policies that strengthen domestic production, reduces trade and bolsters economic resiliency. The work of Dr.
▶ 0:20:47Myron directly results in everyday americans and hundreds of thousands of small businesses rely on policies that foster growth, investment, and opportunity. Dr. myron is ready to step into this role critical to advancing this opportunity and protecting american prosperity. I look forward to confirming Dr.
▶ 0:21:16Myron and the contribution he make in service to our nation. We will now vote on stephen miran. [taking role]
▶ 0:22:35>> the yeas have it. We did say we would allow senator reed to have two minutes. I will adjourn the executive session but bring in the witnesses for the composite hearing. Two or three minutes later we will start the hearing.
▶ 0:23:00Sen. Reed: I just want to make a point, the vote is over. Mr. miran indicated he could hold a dual position to the council of economic advisers because of the legal opinion he researched. We requested in writing that legal opinion and he has refused to give it to us.
▶ 0:23:24Sen. Reed: We are still completely uncertain as to the legal status and independence which is critical as a member of the federal reserve board. As we go towards the floor, this issue of his legal ability to obtain both jobs would be pressed further. Thank you Mr. chairman, very much.
▶ 0:23:51Sen. Reed: >> this executive session is now adjourned. We will start our hearing in about two minutes.
▶ 0:26:43Sen. Reed: >> good morning, thank you all for joining us today. I want to thank the witnesses for joining us. It is critical as we examine the stability of our financial system. It is central to the trust of confidence americans place in banks and since its creation in the 1930's they have never lost a single penny.
▶ 0:27:13Sen. Reed: Over 99% of all deposit accounts are fully insured under the fdic. That is why the folks in south carolina are walking into a midsize bank or credit union they know we may see the fdic insured, their money is safe. That confidence is not just a promise on paper, it is a piece of mind for hard-working families.
▶ 0:27:45Sen. Reed: That record of protection is a cornerstone in our economy and the reason deposit insurance is described as a bedrock of our financial stability. Recent events thrust insurance into the spotlight and raise the question whether it is time to rethink the current deposit insurance system. In silicon valley bank deposit insurance played a key role in stabilizing our economy making sure account holders were safe.
▶ 0:28:16Sen. Reed: The government had to take extraordinary steps to cover unprecedented amounts of uninsured deposits and there was a flight to safety as deposits move towards the largest institutions in banking. Those actions underscore the importance of deposit insurance and the need to carefully evaluate reforms. As I have learned in the past, reform is not simple.
▶ 0:28:46Sen. Reed: It comes with trade-offs. They may provide more security for some small businesses but if not calibrated properly it comes at a cost of banks. The community may way off his trade-offs with an eye towards what strengthens our financial systems rather than what simply sounds appealing in the moment.
▶ 0:29:13Sen. Reed: I have declared they should not be based on rush decisions. We are here to build the best policy to protect the american people. Promise responsible banking and maintain confidence and diversity in our financial system. From the smallest community banks to the largest institutions.
▶ 0:29:37Sen. Reed: I'm eager to hear your insights, each and every one of you will help guide this committee as we weigh potential path forward. Thank you for being here, I look forward to this discussion.
▶ 0:29:52Sen. Warren: . Thank you for holding this hearing today. During the great depression millions of americans lost their life savings as thousands of banks failed. Our country learned the hard way it is critical for the health of the economy for people to have a completely safe space to store their money. I grew up in oklahoma decades after the great depression.
▶ 0:30:24Sen. Warren: I grew up in the shadow of hearing the stories of who lost money, who had been wiped out. What it meant to show up at your bank and money you had carefully saved disappeared. Congress created federal deposit and framework. Depositors have not lost a penny of their insured deposits in the 92 years since then.
▶ 0:30:54Sen. Warren: Fdic insurance is currently limited to $250,000. If a bank or credit union fails customers with bigger deposits may have to wait in line and hope they will be able to recover some fortune -- portion of their funds. Small and midsize businesses need a safe place to store payroll, operating expenses, everyday payments.
▶ 0:31:23Sen. Warren: They maintain balance is above 200 $50,000 in transaction accounts. Several recent bank failures made clear the deposit insurance framework could be strengthened to better serve small businesses and to level the playing field between banks on wall street and smaller banks that serve main street. Take a look at what happened in march of 2023.
▶ 0:31:52Sen. Warren: They created the third and fourth largest bank failures in american history. In order to protect from additional bank runs and stop a full-blown financial crisis, the fed, fdic, and treasury took the extraordinary step of guaranteeing all uninsured deposits at those banks.
▶ 0:32:17Sen. Warren: The government backstop billions of dollars in deposits for massive corporations like the venture capital firms. Those companies did not lose one penny.
▶ 0:32:36Sen. Warren: Compare that with two small bank failures in oklahoma and texas in the years after the crash and the story turns out to be very different. Local small businesses like pharmacies and grocery stores that kept cash at those community banks got 200 $50,000 in fdic coverage and collectively lost millions of
▶ 0:33:07Sen. Warren: Dollars of uninsured balance. I don't expect small businesses to come through call reports every quarter to see if it's safe to keep your transaction account there. I don't think they should be required to make an investigation to see if there is executive fraud at the bank.
▶ 0:33:32Sen. Warren: The last thing a small town dentist or landscaping company or a bakery should have to worry about is losing money because their local banks failed. People understand which banks will and won't get bailed out if there is trouble.
▶ 0:33:51Sen. Warren: In the weeks following the crash , $100 billion in deposits left the little banks while the largest 25 banks saw 120 billion in new deposits. Drawing deposits out of smaller banks diverts funds away from local lending.
▶ 0:34:20Sen. Warren: It pushes it towards wall street speculation. The small businesses without access to a mega-bank, especially in rural communities have no choice but to suffer the consequences if their local bank or credit union fails.
▶ 0:34:38Sen. Warren: I long pushed for leveling the playing field by increasing deposit insurance limits covering these accounts would reduce the likelihood, help smaller financial institutions compete. Ensure they have a completely safe pace -- place to start cash.
▶ 0:35:01Sen. Warren: If they are protected this could limit the government's impulse to backstop giant depositors when a crisis occurs. As they consider this legislation there are a couple of principles I hope they will stick with. The deposit insurance limits should be raised to a level that covers the cash needs of small and medium-size businesses.
▶ 0:35:27Sen. Warren: Businesses do not have the capacity to execute cash management strategies deployed by massive corporations. The limit should apply to transaction accounts. Accounts used to make and receive payments. They should not pay interest or other monetary rewards. The policies should be simple.
▶ 0:35:54Sen. Warren: Opt in and opt out features, they would create unnecessary compliance because customer confusion and invite regulatory arbitrage. A clear and simple framework will be simple for the fbi see to administer for small businesses to understand and easier for banks to implement. It is a commonsense policy with broad bipartisan support.
▶ 0:36:26Sen. Warren: It is good for small businesses and good for our economy. Thank you. >> our first witness is Mr. kevin kelly. I will recognize you for five minutes.
▶ 0:36:41Mr. Kelly: Thank you. Thank you for the opportunity to testify at today's hearing. I am the chairman and ceo of dip -- detroit-based first independence bank with nearly 700 million dollars in assets. It opened in 1970. We have proudly served customers in the detroit area for more than 55 years.
▶ 0:37:10Mr. Kelly: In addition to my role at the bank I also serve as chair elect of the bankers association and I am testifying today on behalf of the aba. It has been a cornerstone of the banking system for a century and strengthens communities and enhances stability of the banks that fund it. Despite its success the deposit insurance system has faced challenges in recent years.
▶ 0:37:41Mr. Kelly: 2023 failures of silicon valley bank and in more recent failures of the community bank in oklahoma raise questions about whether the system could be better prepared to handle the realities of modern banking. The aba has actively solicited input on potential changes that could bolster confidence in the system. They formed a working group of more than 300 banks of all sizes to discuss possible reforms.
▶ 0:38:11Mr. Kelly: They revealed a simple truth. Every option including maintaining the system involves trade-offs that must be acknowledged. In january, I was asked to lead a task force on modernization representing a cross-section of the industry. They are reproved unanimously in july include changes only congress could make and some actions the fbi see could take under its current authority.
▶ 0:38:40Mr. Kelly: Here is a summary of the 10 recommendations. The first being emergency action in authority. The second being deposit insurance coverage and the third being bank resolution. Congress should grant the fbi see approval or liabilities of a specified set of crisis conditions as it did during the pandemic.
▶ 0:39:07Mr. Kelly: To approve transparency congress should require the fdic to outline specific considerations that warrant systemic risk as well as the methodology used to calculate any special assessments on banks after a failure.
▶ 0:39:22Mr. Kelly: While some depositors may benefit from additional oil deposit insurance coverage they do not believe there is currently enough public data to recommend a specific increase in the coverage limit or fully understand the cost of any change. The fdic's should expand its efforts to help banks and policymakers understand the trade-offs between those options. Once the limit is established it should be indexed to inflation.
▶ 0:39:51Mr. Kelly: Congress should assess the size and structure of the deposit insurance fund but also continue to use a risk-based approach when setting assessments. Congress should make the assessments tax-deductible as they were prior to 2018. The fdic's should evaluate the cost of benefits of allowing banks to purchase targeted excess and deposit insurance.
▶ 0:40:19Mr. Kelly: Congress should authorize the fbi see to the least cost test when considering how to resolve federal banks. Congress should also authorize the fbi see to consider the cost of resolutions on communities and provide the fbi see with the power to balance the least cost for community bank failures. Number nine, they should open resolution associated asset options to a more diverse group of investors.
▶ 0:40:50Mr. Kelly: Number 10, the fdic's should publicly approach when it considers of each failure. In conclusion, my task force callings and I believe these recommendations would make the system better, fairer, more resilient in times of stress. For that reason we encourage congress and other policymakers to give them careful consideration. Thank you again for the opportunity to testify and I look forward to your questions.
▶ 0:41:19Chair Scott: Thank. Ranking member warren, I believe we will have to hold a hearing at the next gentlemen's bank in hawaii.
▶ 0:41:36Sen. Warren: I'm ready. [laughter]
▶ 0:41:38Chair Scott: Next is Mr. bob harrison, president and ceo of first hawaiian bank.
▶ 0:41:45Mr. Harrison: Thank you for your opportunity to testify today on behalf of the midsized bank coalition of america. I'm bob harrison, today I'm representing the voice of over 100 midsize banks across the country members of our coalition. Midsize banks are the critical mill of american banking. We finance growth and provide local job creation.
▶ 0:42:16Mr. Harrison: We support infrastructure, housing developments, schools and hospitals. We turn savings into loans for businesses and families. We serve places other banks won't wear commitment is long-standing and personal. Midsize banks are close enough to the communities to understand their needs, strong enough to deliver and vital enough.
▶ 0:42:42Mr. Harrison: That means we are lenders to small manufacturers in ohio, family farms in nebraska. It means in hawaii where my bank has been serving customers since 1858, we are financing homes, schools, businesses across all of the islands. Places where the largest banks have withdrawn from. Midsize banks take deposits from our neighbors and work locally.
▶ 0:43:11Mr. Harrison: We lend out $.76 of every deposit dollar we hold. The largest banks lend out $.54 of every dollar. When deposits migrate, credit to local businesses and communities shrink. The stakes are very real. The regional and community banks provide the majority of small business credit.
▶ 0:43:35Mr. Harrison: That's why I want to thank senator hagerty and senator alsobrooks for their leadership introducing bipartisan legislation. The turmoil shows just how urgent this has become. Three of the four largest bank failures in U.S. history occurred because of lightning fast deposits, on uninsured deposits. They do not lead the banking system.
▶ 0:44:06Mr. Harrison: The perceived safety of very largest institutions. Depositors move because I assume those deposits were implicitly guaranteed. That guarantee is the moral hazard. We do not think we are reinforcing it. It is targeted, narrow, and paid for by the banks. That is payroll and working capital, it is not a blanket guarantee for all deposits.
▶ 0:44:39Mr. Harrison: Modernizing deposit insurance matters. It prevents runs before they start. Banks shouldn't have to scatter payroll accounts just to feel safe. It is industry funded. Banks not taxpayers will pay the cost to replace the funding in the wholesale markets will cost 3-5 times more than potential fdic premiums. The additional premium should be with the concept of everybody benefits, everybody contributes.
▶ 0:45:11Mr. Harrison: The largest institutions contribute more given they have full coverage. Lastly restoring balance in competition. Depositors assume large bank balances are guaranteed when others are not. Why not just tag? Tag is temporary and only kicks in after that. They are costly, confusing, fragile.
▶ 0:45:40Mr. Harrison: If we rely on private networks, those networks could become systemically important. Businesses and families should be free to bank with the institution that knows them and shares their values. It has built our relationships and success to the communities we serve. By enacting target deposit reform congress could protect jobs and paychecks while preserving choice and competition.
▶ 0:46:09Mr. Harrison: That will ensure america's banking system remained strong to serve our economy. Thank you for holding the hearing today. I look forward to hearing your questions.
▶ 0:46:20Chair Scott: Next we will hear from Mr. nicholas podsiadly.
▶ 0:46:25Mr. Podsiadly: I appreciate the opportunity to testify today on deposit insurance reform. My testimony today is my own. I am speaking on behalf of my capacity.
▶ 0:46:43Mr. Podsiadly: As the former general counsel I speak to being perspective to the policies that have been brought forward to expand positive insurance coverage following the multiple bank failures in 2023. I welcome the opportunity to dispute -- expand deposit insurance to cover any of the operational accounts that are necessary for these operational accounts.
▶ 0:47:11Mr. Podsiadly: Congress has long supported insurance back to 1933. I will not go through the history of the expansion of each of the increases. The most recent increase in insurance was in the 2008 crisis raising the threshold from $100,000 to $250,000.
▶ 0:47:37Mr. Podsiadly: That is the last time the topic was addressed without figuring out what should be done with regard to expanding deposit insurance. The dodd frank act did make permanent the $250,000 limit. To change the method of calculating the assessments due to increasing the average institutions consolidated asset limit minus average tangible equity.
▶ 0:48:08Mr. Podsiadly: It's a very complicated formula.
▶ 0:49:33Mr. Podsiadly: That is something that should be reviewed as a policy perspective from this committee. Despite those extraordinary measures congress has not raised the 200 $50,000 threshold. The expanded coverage was applied only to those that had systemic risk exception.
▶ 0:49:57Mr. Podsiadly: With regard to those failures, while not high, 68% of deposits were uninsured. That is something that should be considered as a notion of how do we look at operational accounts going forward from the perspective of those that are to be insured.
▶ 0:50:20Mr. Podsiadly: Estimated losses were about $35.2 billion as of september, 2023. A special assessment covered the largest institutions above $100 billion. How should those costs be distributed across all of the banks?
▶ 0:50:47Mr. Podsiadly: Is it a shared mutual experience or is it a too big to fail type experience? The fbi see proposed three different possibilities for reform. Number one was limited coverage. Maintaining the current balance of 250. It provides a systemic risk exception for everything across the board.
▶ 0:51:15Mr. Podsiadly: How do you pick and choose which type of accounts, particularly operational accounts. Those three proposals have not been addressed by congress. They should be considered for purposes of this hearing. With regard to the final analysis of where the fbi see on these issues, there is emphasis on readiness among the living wills and plans of the bank.
▶ 0:51:46Mr. Podsiadly: Those are necessary topics to discuss. I look forward to any questions you have on those issues. Mr. thank you for the opportunity to testify. We will hear one singular voice. I speak for the 140 4 million credit union members.
▶ 0:52:17Mr. Podsiadly: Small businesses that the main street alive. I speak for 40 million americans . Americans who serve or help serve our nation in uniform and those who spend their time supporting. While credit unions remain safe during the march, 2023 crisis we are concerned about the risk posed for too big to fail banks. The threat this creates for main street.
▶ 0:52:48Mr. Podsiadly: When the payroll is at risk, america's stability is at risk. When small businesses stumble to corporate greed our national security stumbles. This is bigger than banking. This is about paychecks, communities, the strength of our nation.
▶ 0:53:10Mr. Podsiadly: We realize in financial policy we find ourselves trying to choose between the dangers of moral hazard on one side and the need to vote for confidence on the other. This is a question of national hazard. We could grab that imbalance.
▶ 0:53:30Mr. Podsiadly: In march, 2023, he lost a quarter of the deposits, they doubled the previous record while the largest institutions per jp morgan's own analysis, 550 billion moved to big banks during the crisis. This wasn't about better interest rates, it was about confidence. Americans believe the biggest banks are safer.
▶ 0:53:59Mr. Podsiadly: Multiple studies confirmed deposits fled smaller institutions even when larger banks were not offering higher rates of return. The too big to fail hollows out relationship banking in our communities. Small businesses are the backbone of america. They represent 99.9% of firms.
▶ 0:54:29Mr. Podsiadly: 43 point 5% of our gdp and they are key innovators producing patent 16 times larger than institutions. Two thirds rely on local or regional institutions where the market is understood. Payroll becomes unstable and the defense supply chain causes it. We have already seen cost.
▶ 0:54:56Mr. Podsiadly: In oklahoma, the 2020 for failure left a local manufacturer, brandon connor who reported a $150,000 loss on his own payroll accounts. We saw the cost in real time when silicon valley bank collapsed. And ohio-based payroll company paying for it software had its payroll accounts frozen. 8100 small businesses could not make payroll.
▶ 0:55:28Mr. Podsiadly: One of them, a restaurant in chicago missed paychecks for 227 americans. This was rent, credit card bills, groceries. I can't help but think who paid their late fees. A second payroll company, 545 million frozen. Way above the $250,000 insurance limits.
▶ 0:55:59Mr. Podsiadly: How could we hold working americans responsible? Most of our states don't taste -- have basic financial literacy. So far the only message we have sent is if you are big, you are safe. If you are local, you are at risk. This isn't just an economic issue. It is a national security issue.
▶ 0:56:36Mr. Podsiadly: Small firms provide over $80 billion in contracts and 50 $9 billion moved through subcontracting. When they threaten suppliers, they are at risk. They nearly missed payroll because the tat -- cash was tied up.
▶ 0:56:59Mr. Podsiadly: History from the 1980's savings and loan prices shows when small banks fail, they exit the market. What could congress do? First targeted coverage for business payroll accounts. Price risk problem. They had 95% deposits were not covered by insurance. 95%.
▶ 0:57:28Mr. Podsiadly: How could employees understand that? Strength in midsize banks, clarified system and risk, protective fence supply chains for emergency funding finance when bank failures threaten the national security.
▶ 0:57:49Mr. Podsiadly: Let us not ask what small businesses could do, let us ask what our financial system must do to ensure small businesses and the nation they sustain in joy.
▶ 0:58:03Chair Scott: Chair scott: the first question I was going to ask, when too big to fail only gets bigger during crisis, why is that? We have heard a lot about the $250,000 limit, if this banking committee decides to act, whatever number we come to so the number will keep up with the reality.
▶ 0:58:29Chair Scott: We have heard a lot about payroll accounts but we would like to hear from you all talk about the basic limit? As you discuss that, take a couple minutes of time on the question. What is the downside and how do you balance that?
▶ 0:58:53Mr. Kelly: Thank you for the comment. Great to hear your thoughts. The concern about the new limit and what it should be, we don't know what that number should be. We think it should be empirically based. All the way down to small banks and had fierce debate on how to approach this. Unanimously we believe there is more data we need to look at.
▶ 0:59:24Mr. Kelly: Go back to the spirit of the fdic to promote public confidence and stability. At one time that number was as high as 80% or 90%. Today only 57.7% of deposits are covered today. That is actually in your staff memo. I want to thank them for the great job they have done.
▶ 0:59:54Chair Scott: Do you have a different perspective on that question?
▶ 1:00:05Mr. Harrison: When we surveyed our members we had about 40% coverage. That moved pretty dramatically to 90%. That made sense to us. That covers the vast majority.
▶ 1:00:32Mr. Harrison: You are not having customers try to figure out who they should bank with. . Thank you.
▶ 1:00:44Chair Scott: Which banks should be covered by an increased limit of fdic insurance. Is that all banks, some banks, small banks, regional banks?
▶ 1:01:06Mr. Podsiadly: The potential of putting a threshold in statue is that they get updated quickly. Dodd frank had a $50 billion threshold for systemic risk. That is now seven years removed. Is that the right number today based on threshold?
▶ 1:01:34Mr. Podsiadly: Do you ultimately want a situation where you have deposits moving from smaller institutions to larger institutions? Again, I would also support my colleagues on the panel saying indexing is absolutely paramount. Once you put something in statute it tends to be fixed. You will have an outdated threshold 7, 10 years down the road that is no longer valued.
▶ 1:02:06Mr. Podsiadly: I would caution on making sure there is a proper index of any threshold.
▶ 1:02:11Chair Scott: Mr. kelly, how do we make sure we don't disadvantage smaller institutions, credit unions also bear that burden as well. A construct that works but runs more institutions out of business?
▶ 1:02:40Chair Scott: >> I see the banking space as a system. I look at things from a broad perspective. There is merit to the largest banks we have in our system. We also need the capillaries.
▶ 1:02:59Chair Scott: I would suggest as we think about this we apply a process that certainly creates consistency for the customers for which bank they decide to use.
▶ 1:03:14Sen. Warren: I want to pick up where Mr. kelly is. We absolutely pick winners and losers. If things get rough in the banking industry and it started to look scary, get out of the small banks. The federal government will only stepped in behind the big banks. That is literally what is happening. Nobody bails out the little guys.
▶ 1:03:45Sen. Warren: They only bail out the giants. That is not just a problem for banks. It is helping to refinance business in america. Their role to play is not how to help the local drugstore. It is not understanding this local manufacturing business trying to get itself started and we understand the bumps, when the money will be there and when it will not.
▶ 1:04:17Sen. Warren: It is the small banks and medium-sized banks that do the crafting that this kind of work demands. This policy is not about trying to pick winners and losers. It's about trying to level the playing field again. The bank I work with is a place I could safely keep my money even in troubled times.
▶ 1:04:50Sen. Warren: You both lead smaller financial institutions. You play important roles in the community. What happened to deposits at small and midsize institutions when spv fails. Does it affect your ability to be able to lend the businesses you want to be able to support, why don't we start with you?
▶ 1:05:25Mr. Harrison: There is an intense amount of uncertainty. All of my peers did the same thing. Honestly we proactively did some banks draws to make sure we had liquidity. That liquidity is what we used to make loans. That's what we used to put back into the communities.
▶ 1:05:57Mr. Harrison: That is much more expensive to go out and get that kind of funding. Many of my peers lost significant amounts of deposits the week after that happened.
▶ 1:06:11Sen. Warren: Spv fails and you wind up spending money. I appreciate that you do, that isn't free.
▶ 1:06:19Mr. Rice: Credit unions that were untouched, it's not lost upon us that fear doesn't have a distinction between banks and credit unions. Much like Mr. harrison has pointed out that big banks lend out 55% of deposits, credit unions, 550 billion is taken out of the small bank and credit union system.
▶ 1:06:51Sen. Warren: You have the potential to contract the economy. Tell me about the right number. You lend the money out. Your customers tell us when they flee is 250,000 is not enough. It involves payroll and everything above it. Could you give us the idea of what you think is the right insurance number?
▶ 1:07:25Mr. Harrison: I looked at our customer base. There is hospitals, small manufacturers, we just don't want the customer to have to decide. That number covers the vast majority of accounts. That is a number we are comfortable with. 250 thousand does not seem to be it.
▶ 1:07:54Sen. Warren: How do you feel about that number?
▶ 1:07:57Mr. Rice: I have written 540 $5 million in the payroll account. We support at least $20 million. I don't agree with the terms small business. To call it small is interesting. Small businesses range of two -- up to 500 people. We do support $20 million.
▶ 1:08:28Mr. Rice: You need to look at payroll and payroll account companies and include them without necessarily including insurance premiums.
▶ 1:08:37Chair Scott: Just in case someone is wondering, we did invite the big banks to be here today, I don't see them.
▶ 1:09:02Sen. Kennedy: You think we should raise this to $20 million?
▶ 1:09:06Mr. Rice: That is for payroll.
▶ 1:09:11Sen. Kennedy: You agree with that?
▶ 1:09:14Mr. Harrison: I agree that would be helpful. >> I don't have a number. Our thought is it needs to be studied.
▶ 1:09:26Sen. Kennedy: Mr. podsiadly.
▶ 1:09:30Mr. Podsiadly: Thank you. Very well done.
▶ 1:09:38Sen. Kennedy: I'm impressed myself. Mr. podsiadly I used to get a lot of it starts with a "p."
▶ 1:09:51Sen. Kennedy: Give me a number.
▶ 1:09:53Mr. Podsiadly: It needs to be empirically based.
▶ 1:10:03Sen. Kennedy: You use to work at fbi c. The institution living up on a number of $20 million deposits that --
▶ 1:10:14Sen. Kennedy: Give me a number. You are not going to give me a number.
▶ 1:10:19Mr. Podsiadly: I will give you my best guess, 250 is not high enough. $20 million is probably too high.
▶ 1:10:38Sen. Kennedy: Suppose we go to $20 million, banks will pay this through assessments.
▶ 1:10:43Mr. Podsiadly: Correct.
▶ 1:10:48Sen. Kennedy: Who's going to push back among the banking community?
▶ 1:10:51Mr. Kelly: I'm not sure who will push back on that.
▶ 1:11:00Mr. Harrison: There are some smaller banks who think they will not need it. They will be not as willing to do that. Some of the banks that currently have coverage will likely push back.
▶ 1:11:16Sen. Kennedy: Some of the larger banks? You think the larger banks will oppose? Mr. harrison I don't think they will support it.
▶ 1:11:43Sen. Kennedy: Who is going to push back. Who's going to push back?
▶ 1:12:00Mr. Rice: They will be delighted their paychecks are guaranteed. I think their silence is implicit.
▶ 1:12:14Sen. Kennedy: Here's what I hear you saying. $20 million indexed to inflation with the large banks not liking it. They have an implicit guarantee. Anybody disagree with that? Does anybody disagree with senator warren's assessment that the big banks don't have to worry about it?
▶ 1:12:48Sen. Kennedy: Ok.
▶ 1:12:54Mr. Kelly: I lead a committee that included banks of all sizes. One of the things I learned is there is a lot of complexity associated with regulatory aspect of those institutions. There liquidity requirements are very different than mine. It is something I had to become sensitive to.
▶ 1:13:22Sen. Kennedy: You are a smart man. I appreciate that. You are telling me this year today, we have a problem. This isn't directed towards you. We are not going to solve this problem by pondering our navels. We have to come up with a number , and indexed it to inflation.
▶ 1:13:52Sen. Kennedy: Find out who's going to push back and why? It is a challenge. I understand the difficulty and the nuances. I don't mean to denigrate your analysis. You know a lot more about this than I do. What I'm hearing is $20 million, indexed it to inflation. The larger banks will raise it.
▶ 1:14:26Sen. Cortez Masto: Let me follow up on senator kennedy's line of questioning. Mr. kelly I think you and Mr. podsiadly talked about the need for this to be studied talking about it being empirically based, what do you think about that?
▶ 1:14:47Mr. Kelly: If you look at the history of how we made these decisions, they have-- 2008 wasf permanency through 2010. 20 years before that, 1980, raised to $100,000 in the midst of a crisis.
▶ 1:15:10Mr. Kelly: We believe that there is enough data there with the approval of the fbi see to look at the original intent to provide safety and confidence in the financial system. Where people want to bank. Creating a sense of safety.
▶ 1:15:32Mr. Kelly: Senator moran mentioned a moment ago, there isn't that level of confidence in the system after 2023 and we are suggesting that there is a data that we should be able to run to come up with a reasonable solution and make it going forward and indexed to inflation.
▶ 1:15:49Sen. Cortez Masto: Mr. podsiadly? How do you pronounce that?
▶ 1:15:54Mr. Podsiadly: You got it, thank you very much. [laughter] countervailing perspective, I come from a regional banking background, and I will say that during our experience in 2023, we had the unique opportunity where we saw deposit runs coming out of the bank.
▶ 1:16:21Mr. Podsiadly: We spent every single day, everyday at 5:00, everyone from commercial bankers to consumer bankers to legal risk getting together and say how are we winning the deposit battle. How are we stopping the outflows from happening? We were able to do that at the bank at that time. So, there is the ability to stop these outflows from a too big to fail perspective. It takes a lot of work.
▶ 1:16:52Mr. Podsiadly: I will tell you, we worked our tails off to make sure that didn't happen. Ultimately, the bank was able to keep -- one of the few regional banks when I was there, to grow deposits during the outflow market. So, it takes work, but yes, it can be done.
▶ 1:17:14Sen. Cortez Masto: Do you see a distinction, Mr. rice, Mr. harrison, do you see a distinction there that some should have different levels of coverage or not? >> if you don't mind, I will go first. We do. We are fully supportive of the work they are doing.
▶ 1:17:38Sen. Cortez Masto: We think that the analysis is there, the facts are there, it was a crisis 2.5 years ago and that was a time when we were calm to look at what the specific problem was and it was uninsured operating accounts. The solution is what we are proposing. Sorry, what senator hagerty --
▶ 1:17:55Sen. Cortez Masto: You believe there is enough data.
▶ 1:17:58Mr. Rice: We feel that.
▶ 1:18:00They Can'T -- Mr. Harrison: We feel that, when they came out with that study and look at operating accounts, that could be a potential targeted solution.
▶ 1:18:12Mr. Rice: On a broader level, we would not allow americans to uninsured homes or motor cars. Why do we allow that asset class to go uninsured? That's my first point. Second, my testimony demonstrates the risk when payroll companies fail, those amounts tend to be much larger than $250,000.
▶ 1:18:37Sen. Cortez Masto: Thank you. Mr. rice, you talked about the impact to the employees and small businesses. But you also, and I believe it is in your written testimony, you talked a bit about your national security issues. Will you address that and why it is important for us to take into account?
▶ 1:18:55Mr. Rice: Absolutely, for years the government has sought through various programs to make sure that national security resilience remains strong by studying those contracts going out to small businesses and one example that we gave, in the living room of everyone right now, rumba. It was designed for bomb disposal, now it saves living rooms. -- queen's living rooms.
▶ 1:19:26Mr. Rice: It can be turned into an everyday benefit for americans. These companies are vital to the economy into defense. I think I also highlighted lockheed martin with 6.6 billion in contracts to small companies, and the orion contract, our deep space program, has 1500 businesses in support of that program and in almost every senator's district they have representation in that program.
▶ 1:19:51Sen. Cortez Masto: Thank you. Mr. chairman?
▶ 1:19:55Chair Scott: Senator hagerty?
▶ 1:20:00Senator Hagerty: We thought -- we saw three of the largest four bank failures take place in 2023. And depositors began to flee. I had them calling me on the phone. "what do we do" question mark scooter, that hard work, a lot of it went into place. Why is that? I think Mr. harrison got it. The biggest banks enjoy an implicit government backstop that the smaller banks don't have.
▶ 1:20:29Senator Hagerty: This uneven playing field siphons deposits away and fueled a small businesses and local businesses in our economy. It is critical in tennessee, critical across the entirety of the united states. Legislative action is essential. No one wants to see it devolve into a system like canada, where a handful of megabanks control 90% of the assets. We need a system with a central role for community and midsize banks that utilize that system here in the future.
▶ 1:21:01Senator Hagerty: Scooter, I am coming to you. But I have a quick question for you, Mr. harrison. Why is it vital to address the issue now rather than wait until the next crisis?
▶ 1:21:14Mr. Harrison: It's essential now because we are not in a crisis. Because we don't have to respond to something knocking on our door. If we don't do it now, we really are uncovered. We don't have any emergency authority. Our businesses on main street don't have coverage for that operating maintenance.
▶ 1:21:40Sen. Hagerty: I share your concerns and we proposed a solution for these non-interest-bearing transaction accounts that we are talking about. Accounts that businesses used to cover payroll, rent, pay suppliers, and basically handle a variety of day to day expenses, precisely the funds that fled in 2023 and protecting them strengthens the confidence in the community and the midsize banks, strengthening main street and our economy overall intern.
▶ 1:22:11Sen. Hagerty: I filed this proposal as an amendment to the nda alongside senator alsobrooks and we will file soon stand-alone legislation in an updated fashion to get at this. Scooter, I'm coming back to you now. I think you can help us get at this. There seems to be a concern that in doing this expansion we are somehow going to raise the assessments on the banks we are trying to help. I want to help get at this.
▶ 1:22:40Sen. Hagerty: So, I've got a few questions to ask you. First, this merely shifting the deposits from the uninsured to the insured cause and ipso facto increase in the total liabilities of the bank?
▶ 1:22:53Mr. Podsiadly: Not necessarily, its risk-based end would depend on a number of factors.
▶ 1:22:59Sen. Hagerty: No was sufficient. Insurance governed -- assurance coverage expansion doesn't raise premiums to banks. To be clear, the increased assessments are triggered statutorily when the reserve ratio drops below the mandated minimum. My next question, is the dip currently overfunded beyond the statutory minimum?
▶ 1:23:20Mr. Podsiadly: I think that is a question of characterization. I don't know that it's over or under funded, but I would say this, the dip, if you add new risk to the system, namely institutions that could load up on these types of deposits that are now insured, yes, it could raise a question from characterization.
▶ 1:23:43Sen. Hagerty: To be clear, the diff is currently overfunded. To be clear on that. The reserve ratio is adequate, it's exceeded its required mandatory level, and it is actually trending upward. This is why in addition to a 10 year transition plan, it's precisely why my proposal is able to expand coverage without imposing new assessments on the system.
▶ 1:24:09Sen. Hagerty: So, I would like to close with this for my colleagues, understand that this targeted coverage despite -- deposit expansion will do something to shore up confidence in midsize and community banks and protect main street businesses with a stronger diversified banking system benefiting every american and I look forward to the standalone legislation alongside senator alsobrooks on this particular issue. I think it will serve america well, it will serve the banking community well, and I urge my colleagues to support it.
▶ 1:24:39Chair Scott: Senator warner?
▶ 1:24:42Senator Warner: I want to follow up there on senator alsobrooks and senator hagerty. This is something we need to do, I agree. I appreciate your good work here, senator hagerty. I would love to have the discussion about if we add more contingency, you know, Mr. podsiadly -- am I screwing up your name?
▶ 1:25:05Senator Warner: [laughter] I do think that the dip right now -- diff right now is overfunded, but we have to get into the nitty-gritty on this. I agree with senator alsobrooks and senator hagerty on this.
▶ 1:25:23Senator Warner: Something I've been frustrated with for years, I always felt that before we start re-changing the regulatory structure, we have to use the tools we have got. One of them is the discount window.
▶ 1:25:38Senator Warner: So, I have been working for a long time on, you know, trying to remove the stigma -- and I find it not a great reason that you have got, the fed was a writ -- initially set up with the discount window for the liquidity tool and the idea that it would be a statement means we shouldn't use it.
▶ 1:26:01Senator Warner: I've got legislation that would have this better utilization demonstrate that the banks can use it on a regular basis. We only use the deposit insurance as a last resort. One thing my bill calls for is to look at pre-pledged collateral.
▶ 1:26:31Senator Warner: Would you agree that that tool is something that shouldn't be -- should be counted as banks look forward? How do you generally think about that better utilization of the discount window?
▶ 1:26:50Mr. Podsiadly: I would say that liquidity, you can have as much capital as you want, liquidity kills. Anything that establishes or creates a more liquid opportunity for banks to get funded is helpful. I would support that.
▶ 1:27:09Sen. Warner: After silicon valley, there was a lot of buzz about how we grapple with the ability to have accelerated runs driven by technology. Candidly, I think that some of those folks who spooked the market bore some responsibility.
▶ 1:27:31Sen. Warner: None of that went anywhere in terms of, you know, no matter what kind of capital you had, if you had one out of every four deposit dollars leaving the bank every six hours, like with silicon valley, I'm not sure how we get at that. I would welcome ideas. Mr. harrison, Mr. rice, one of the tools I'm a big advocate for is reciprocal deposits. We have seen a big upsurge in that.
▶ 1:27:59Sen. Warner: How'd does the ability of the reciprocal deposit fit into this discussion about the insurance component? And then I got a question for Mr. kelly after.
▶ 1:28:10Mr. Kelly: Thank you for the question. They do have a role, candidly it's a workaround. It's a workaround that is private based based on data technology. Candidly, it went up quite a bit after silicon valley and there is a systemic risk that it could be seen in that. Going back to your discount window question, the regulators and the banks have been working closely on that. It's an operational issue. As well as a stigma.
▶ 1:28:41Mr. Kelly: I think the stigma will go away over time.
▶ 1:28:42Sen. Warner: Mr. rice?
▶ 1:28:44Mr. Rice: Reciprocal's are great. They rose to 173 billion in banks after the crisis. It's a capacity issue and a nice tool, but I want to point out that first republic survived the first wave of bank runs and then put in another 30 billion with reports that they lost more deposits than initially were in. You do need to stop fear in its tracks when it enters into a system.
▶ 1:29:11Sen. Warner: Again, the excuse that we don't want to use the tool because of the stigma, and I've been a huge advocate for cd5's in the past. One of the things that we started, and again with great help from senator crapo, equal opportunity coalition, trying to get long-term deposits into cdf eyes and mbi's.
▶ 1:29:37Sen. Warner: How do we, how do we do more of that. The president should get credit for this, he's undermining it now, but he had been the godfather in terms of the 12 billion in tier one capital. How do we make sure we keep that equal opportunity coalition alive?
▶ 1:29:56Mr. Kelly: Thank you, senator warner. You were a part of that leadership under trump 1.0 and it has been impactful to the cdf eyes face, so thank you for your leadership in that regard. In most cases, many of our banks have used reciprocal deposits to create a level of opportunity for large deposits for the banks. It's been a critical component.
▶ 1:30:23Mr. Kelly: I don't think it is the totality of the answer but it is a complementary component. I'd like to say thank you again for your leadership on this topic. What we proposed is what you are describing.
▶ 1:30:35Sen. Warner: I know my time is up, but I would urge my colleagues who are a part of the cdf I coalition, secretary bessent has been supportive as well. We've got $600 million that hasn't been released. The secretary wants it, but we could really use some help with those dollars before the end of the fiscal year.
▶ 1:30:56Chair Scott: Thank you.
▶ 1:31:01Senator: Mr. kelly, special thanks to you being here. As a native of alabama, you are right down the road from my hometown of enterprise. I think you will understand this. He's a true bipartisan witness who graduated from auburn university with his undergrad and then graduated from the university of alabama with his mba. We are certainly, certainly proud to have you here today.
▶ 1:31:27Mr. Kelly: Thank you, senator.
▶ 1:31:33Senator: So much of today's discussion is in light of the deposits we saw after the 2023 bank failures that occurred and it is important to take this into context. It was clearly a mismanagement issue that was clearly where we had unchecked banking executives and supervisors who truly failed to do their job. Not a trait -- not a testament to the resiliency of the bank community and then strength in the face of it.
▶ 1:32:01Senator: It's important to lay a foundation that -- on that before we have this discussion. I want to get your thoughts on a couple of things. So often this committee and this body and congress as a whole creates regulations that to me become outdated very quickly.
▶ 1:32:20Senator: I have heard you each to speak to that end it seems you feel the same when it comes to indexing these things and making sure that there is fluidity to make sure they aren't outdated by the time they get in. For some of you, I know that that is one of the things I've looked at, the sec small definition, it seems virtually limitless and I would have some legislation that could move through that when it comes to dodd frank and other things.
▶ 1:32:49Senator: Taking a look at this, it is important to consider indexing or other important thresholds that will make it more meaningful long-term. I would like you to briefly each talk about what it needs to be. Again, we only have a certain amount of time, so if we could quickly?
▶ 1:33:07Mr. Rice: Thank you, senator. That would be $350,000 today. And with recommendation from this committee, we should do the same.
▶ 1:33:19Mr. Harrison: Agree completely. As I mentioned earlier, dodd frank was obviously changed by congress in 2018 from 50 billion to 250. Now we are seven years removed from that. Is this the new number that needs to be changed? Indexing that is a good way of getting to that issue.
▶ 1:33:41Mr. Kelly: I agree that indexing is really important. The world changes and sometimes we are set to change with them.
▶ 1:33:50Sen. Britt: We've talked a lot about business accounts and we all understand the importance of that and payroll, etc.. My question that I'd like to follow up on is on personal accounts. Do you think that needs to be increased as well, Mr. rice?
▶ 1:34:06Mr. Rice: Ideally that would be $350,000 today.
▶ 1:34:11Mr. Podsiadly: I think that you need to look at it from an individual level. There are a lot of different ways to increase the cap. Say that you are married, you get 500.
▶ 1:34:22Mr. Kelly: Do you not think that
▶ 1:34:25That -- Sen. Britt: Do you not think that that puts smaller banks at a disadvantage?
▶ 1:34:30Sen. Britt: It would absolutely depend on the dollar value of the individual.
▶ 1:34:36Sen. Britt: But I'm concerned about is these incredible community banks in alabama and the resiliency they've shown him in the face of the unthinkable, those are pillars of the community that ultimately allow small businesses on main street to get their american dream to thrive and in many cases what we don't want to do is see what we are doing here and congress drive them to a larger entity when it seems so essential for them to stay a part of the
▶ 1:35:06Sen. Britt: Committee.
▶ 1:35:10Mr. Podsiadly: They are absolutely the linchpin of the consumer economy, and there are ways you can structure the accounts to make sure you are maximizing.
▶ 1:35:19Sen. Britt: I would love to talk about that more, but I'm running out of time. Apologies.
▶ 1:35:24Mr. Rice: We haven't had this question on the personal side, but I support it.
▶ 1:35:29Sen. Warren: Mr. kelly?
▶ 1:35:31Mr. Kelly: Yes.
▶ 1:35:32Sen. Britt: Since you understand the communication community banking world, what are the challenges before us even the changes on the personal side? In terms of assessments and that shifting and what it means long-term? Can you speak about the positive and negative of what it would bring?
▶ 1:35:51Mr. Kelly: Being very deliberate, if this body approves the sweeper forward and energy being swiftly on it, it's not a two-year study, even in the 2000 -- 2008 timeframe, they been talking about positive insurance for years. We need your leverage and leadership to help make it happen.
▶ 1:36:16Sen. Britt: Roll tide.
▶ 1:36:18Mr. Kelly: Same here.
▶ 1:36:21Mr. Harrison: I don't know what she just said. [laughter]
▶ 1:36:24Sen. Britt: Thank you to all of our witnesses -- senator cowan thank you to all of our witnesses today. Minnesota is also a 300 co. We are blessed to have such a diverse ecosystem in minnesota.
▶ 1:36:46Sen. Britt: When all of those crashes happened a few years ago, there was a lot of anxiety among the financial institutions about what the fear factor was going to mean for them. But at the end of the day, I think I have this right, because the small banks were so rooted in their communities and so trusted by their customers, I
▶ 1:37:18Sen. Britt: Would describe it as everything having settled down. How can we -- I am convinced that we need to raise the deposit insurance cap. The idea of indexing it makes sense to me. But my question may be to Mr. kelly, to start with, is how can we make sure we are also reflecting the needs of these smaller banks and that we are not imposing unnecessary costs on them or just making it more difficult for them as we also
▶ 1:37:50Sen. Britt: Want the benefit of a higher cap?
▶ 1:37:51Mr. Kelly: Thank you for the question, senator smith. The foundation of this is the local leadership. To your point, we moved into that market in 2022 and got a couple of calls about our stability as an institution there in 2026. But through our relationship, the order came down.
▶ 1:38:16Mr. Kelly: We went to chamber events and other nonprofit events and the question was continuously opened, is my money safe? We have to be the leaders who set the tone that we are looking out for this not only in crisis but in moments of calm. Thank you for your question on this and thanks to my colleagues, who have done a great job looking at the research when it comes to their banking research numbers. We need action now on this topic.
▶ 1:38:47Sen. Smith: And they could be done without burdening other small banks that are quite stable?
▶ 1:38:53Mr. Kelly: I can't commit to what it will costs, but if we can approach it in a reasonable manner such that we provide that stability and confidence, that was the mission of the fbi see.
▶ 1:39:06Miss -- Sen. Smith: Mr. harrison, my words, not yours, but our financial system seems helped -- rigged to help the biggest banks. Sometimes we might be putting midsized and small banks at a competitive disadvantage because of the implicit guarantee that the biggest banks have, the 250 $8 billion threshold that is in
▶ 1:39:37Miss -- Sen. Smith: The legislation, I'm wondering if that, is that the right threshold? Does that create a perverse disincentive for midsized banks to fill that particular an important niche?
▶ 1:39:58Mr. Rice: You know, the midsized banks, what we are looking for is a level playing field and I don't think we have that. That goes to the media question. The right number on the upper end is many of the larger banks, talking to my peers, they saw that positive. The concern was that if they did nothing, positives would continue to drift to the largest banks without any kind of coverage, continuing the trend.
▶ 1:40:31Sen. Smith: I would agree with you, I think that something we should look at. That deposit migration is completely unrelated to the underlying stability of the bank and management of the bank and has to do with this sort of perceived additional safety that can be achieved during a bailout because of the systemically significant.
▶ 1:40:54Mr. Rice: I know we spoke about a former employer who didn't, but many did.
▶ 1:41:00Sen. Smith: Thank you. I yell back.
▶ 1:41:03Chair Scott: Senator ricketts -- senator ricketts?
▶ 1:41:15Senator Ricketts: Thank you for being here today. When silicon valley bank collapsed, it wasn't just customers affected. Commercial deposits fell out across the country, as you were just describing. It wasn't because they were suddenly weaker. They were very well and stable.
▶ 1:41:39Senator Ricketts: It's because that business is balances about the fbi see safety realize that their funds could be at risk unless they shifted to a bigger bank overnight. Leaving small, midsized, community banks, credit union disadvantage, making it harder for them to keep serving those communities, similar to my colleague from minnesota the nebraska community banks are the lifeline of our communities.
▶ 1:42:12Senator Ricketts: We don't really have any big banks. They finance our farms, our businesses, they really provide for our families. They provide capital in keep the local economy thriving. Harrison, kelly, you represent financial institutions of various sizes and answered questions about how after the collapse, did you see deposits move away.
▶ 1:42:40Senator Ricketts: Can you talk about the degree to which you saw commercial depositors moving funds away from the institution?
▶ 1:42:48Mr. Kelly: We did not see movement. We had pending deposits about to happen that were put on hold. If I recall correctly, several of my colleagues have said pretty much the same thing, they had to fight for deposits, but I'm not sure that these individuals at this table, and the missed something, soft light.
▶ 1:43:08Sen. Ricketts: So, did you see then that this didn't happen, so the ruling, even after things die down, business went back to normal?
▶ 1:43:18Mr. Kelly: I would say that business came back to normal for us in the midst of the crisis. But the reality is we know that there was flooding that took place and what we are trying to do what the clarion call from this parent -- panel, I can tell you, we need action now before the crisis happens again.
▶ 1:43:38Sen. Ricketts: Mr. rice, without be accurate for your credit union as well?
▶ 1:43:42Mr. Rice: Because of the structure, credit unions actually grew 2% because of the stability of the credit union. Contingent and fear are dangerous. When the next wave hits, it could take anybody out.
▶ 1:43:58Sen. Ricketts: You said some of your colleagues saw that fear. Even if you didn't experience it itself. Did they see things coming back after it settled down?
▶ 1:44:15Mr. Kelly: I don't have the exact answer, but that was from my colleagues in the midsized bank holders who were better.
▶ 1:44:27Mr. Harrison: Us personally we lost some tens of millions, but some of my peers lost 10% of deposits within a week. A significant amount. Some of it came back, not all of it.
▶ 1:44:41Sen. Ricketts: Some but not all. Getting back to that perceived risk.
▶ 1:44:47Sen. Ricketts: Once it moves, it is much harder to get back. And your view, what risks are there around local economies when it comes to having that risk out there that these depositors flee?
▶ 1:45:09Mr. Podsiadly: Following up on my colleagues on the panel here, our experiences were different when it came to the prior employer at the bank. We rounded it out and made sure we capture those deposits.
▶ 1:45:23Mr. Podsiadly: That said, from a systemic risk perspective, obviously my former hat as a regulator concerns me a bit that you can increase the concentrations of smaller depositories loading up, 20 million here or there, and then all of a sudden they are at 500 million dollars, six hundred million dollars in insured deposits. Will that create systemic risk to the platform as a whole?
▶ 1:45:53Mr. Podsiadly: Is that going to be costa-based into the system? Something that from my former regulator had worries me a bit.
▶ 1:46:01Sen. Ricketts: I have to disagree with that -- Mr.
▶ 1:46:05Harrison: I have to disagree, I think we are now spreading out the risk.
▶ 1:46:11Sen. Ricketts: One more quick question. Mr. chair? I guess that's a no. I will submit a question for the record. How's that? [laughter]
▶ 1:46:20Chair Scott: Actually, it's her time.
▶ 1:46:23Sen. Ricketts: Quite right.
▶ 1:46:26Chair Scott: 10 seconds to ask a question?
▶ 1:46:29Sen. Ricketts: I wanted to say, any other reforms that you can think of that are not in the bill that we should consider?
▶ 1:46:37Mr. Podsiadly: Yes, I will take sent -- 20 seconds and I don't want to take senator alsobrooks time. Whether or not the systemic risk exception should be created the way it was with this notion that every deposit is insured. His active policy? I don't know. I would offer that it is counterintuitive to the least costs deposit insurance test congress created.
▶ 1:47:07Mr. Podsiadly: That should be something taken into account longer-term.
▶ 1:47:13Mr. Kelly: Resolution in emergency powers were the topics we had.
▶ 1:47:18Sen. Ricketts: Thank you so much.
▶ 1:47:22Senator Alsobrooks: Thank you, chairman, and to senator warren for holding this important hearing and to the witnesses for joining us today. I would also like to thank my friend, senator hagerty, for his partnership in leadership. Mr. chair, I know my timer isn't working here, so I will be quick , just 15 to 20 minutes, then I will be out of your way. [laughter]
▶ 1:47:44Chair Scott: I'm happy to give you a 32nd warning.
▶ 1:47:47Sen. Alsobrooks: Thank you. Will do. After the silicon valley bank collapsed, individuals and small businesses questioned the security of their deposits. Many believed that they were only truly protected if they were housed at a large bank that had the implicit backing of the federal government. Now congress has the opportunity to provide greater certainty to small banks, credit unions, businesses and the workers they employ.
▶ 1:48:16Sen. Alsobrooks: Senator hagerty and I have drafted bipartisan legislation to provide this certainty. The legislation would expand to cover business checking accounts held primarily by small businesses at small banks. These bank accounts are used to pay employees and maintain daily business operations that are often uninsured, leaving them vulnerable if there is another silicon valley bank style financial crisis.
▶ 1:48:41Sen. Alsobrooks: The proposal will give businesses certainty that up to $20 billion in payroll accounts held at neighborhood banks and credit unions will be insured by the full faith and credit of the federal government in the event of a crisis, helping maryland small businesses that make up 99% of my state's business community and employ more than one million people.
▶ 1:49:03Sen. Alsobrooks: I am grateful for the support of the national association of women and business owners that praised the legislation saying that women business owners must be able to trust that regardless of their banking institution, they can make payroll. I am grateful for the support of the maryland credit union association that represents 65 credit unions in maryland with 1.9 billion members.
▶ 1:49:26Sen. Alsobrooks: Their ceo said that our legislation would give them critical peace of mind by safeguarding the funds meant to support jobs, salaries, and meet key expenses to strengthen trust in the financial system. So, Mr. harris -- harrison, I have a question for you and I want to thank you all for being here. Mr.
▶ 1:49:48Sen. Alsobrooks: Harrison, you spoke passionately about the importance of raising deposit insurance to cover small and medium-sized businesses in the event of a crisis and I couldn't agree more. I am proud of this proposal that myself and senator hagerty, like the chairman and the ranking member want to make sure to get right. Can you talk specifically about how our proposals would help the clients that you serve and are there areas that could be improved?
▶ 1:50:17Mr. Harrison: Senator, thank you for your leadership on this issue. The topic is near and dear to us , really supporting small businesses. In my opening comments I said, so much of what we got at the back of the community, in that small business, being able to support them makes the difference. It gives more certainty in times of stress. When times are good, nobody needs this kind of thing.
▶ 1:50:47Mr. Harrison: Nobody looks at deposit insurance when they choose a bank. That's how we serve our communities, making sure the dollar we receive goes back into those communities. There's been talk about what the actual limit should be and how large an organization should cover.
▶ 1:51:14Mr. Harrison: I know that the proposal that senator hagerty in maine covers a vast majority of accounts needed to make payroll. They will achieve that, it's a huge goal it will be beneficial.
▶ 1:51:31Sen. Alsobrooks: In terms of the proposal, one question is always who pays for it and how. We share the goal in preventing small banks from being disproportionately targeted. Do you think that the pricing approach would mitigate the need for increase in assessment needs?
▶ 1:52:01Mr. Rice: That would do a lot depending on what happens in the greater market, as more than enough to maintain the diff at the current level.
▶ 1:52:08Sen. Alsobrooks: Thank you. On-time and under time. Thank you, Mr. chair.
▶ 1:52:17Chair Scott: 15 seconds, still.
▶ 1:52:20Sen. Alsobrooks: I'll yield the rest of my time.
▶ 1:52:22Chair Scott: Senator warnock?
▶ 1:52:26Senator Warnock: Many small businesses struggled in the banking crisis to pay employees and cover expenses because those businesses chose the wrong bank. In my view small businesses should not be punished for the mistakes of failed bank executives.
▶ 1:52:57Senator Warnock: We should be careful not to place additional strains on the community banks. Many serve populations and communities that giant wall street banks don't. Across the country we compete with big banks by knowing and investing in the communities they serve.
▶ 1:53:19Senator Warnock: Are you concerned about the deposits, the big banks, where they rushed to put their money because they are nervous about keeping their money safe?
▶ 1:53:33Mr. Kelly: I would tell you that whatever it's called, 2023, there was an flight moving because of nervousness and anxiety within the business community. So, the efforts we are talking about today would hopefully bolster confidence and allow small businesses to feel more confident in putting their money into those small towns in the state of georgia.
▶ 1:54:03Sen. Warnock: In two decades we have seen a 50% drop in the number of community banks and at the same time, wall street banks have continued to make more and more and more money, getting bigger and bigger.
▶ 1:54:23Sen. Warnock: How should we make sure that small community banks, with a role in the larger ecosystem between the big banks and small community banks, that we clearly, all the movement is going in one direction? How should we make sure that small community banks do not foot the bill for deposit insurance reform?
▶ 1:54:49Mr. Kelly: It has to be carefully considered with adequate regulation on this topic, senator. It can cause the business is be challenged economically and you see, really, looking at what happens in the consolidation, a lot of it is economics. One issue I will bring up that is not a part of this topic is when you look at the things that look like a bank and act like a bank, it should be taxed like a bank.
▶ 1:55:17Mr. Kelly: My point is we have a lot of iniquities across the seat -- the system that we have to deal with. Taxation is one of those that will allow these small institutions to stay in small towns. It's important to make sure that they become the lifeblood for economic prosperity in these small towns.
▶ 1:55:37Sen. Warnock: The issue is further complicated by technology and disruptors?
▶ 1:55:45Mr. Kelly: Those partnerships are needed to help overcome the technology.
▶ 1:55:50Sen. Warnock: We could see reform if we aren't careful in congress.
▶ 1:55:57Mr. Kelly: That is a concern. There could be unintended consequences. Our proposal for recommendations was a bit more comprehensive. If you take a rifle shot approach at this, we will take another shot at those unintended consequences.
▶ 1:56:15Sen. Warnock: Mr. harrison, how will a proposal to increase deposit insurance limits for businesses help smaller community banks compete with big wall street banks?
▶ 1:56:27Sen. Warnock: It really levels
▶ 1:56:29The Playing -- Mr. Harrison: It really levels the playing field, thank you for the question. That's what we are asking for. When we saw those deposits leave, not only did they not come back, but it introduced the larger banks into our customer base. You are just fighting to hold onto the customers you had in service for many years. By that higher deposit limit, knowing that you would be able to protect that and prevent it from happening next time.
▶ 1:56:59Sen. Warnock: Thank you. It's so important to get this right and remain focused on getting this done right so that we do not worsen the problem. I will stop now to say that I meet angela alsobrooks record. [laughter]
▶ 1:57:13Chair Scott: Thank you, senator, for doing so. In closing, thank you to the witnesses for being here today, some of you traveled across the country to participate in his hearing. It's really helpful information that was provided to us today. I think that this committee should act, frankly, on increasing the limits. It's not simply the payroll accounts that need to be taken care of or looked after.
▶ 1:57:38Chair Scott: It is the average everyday american who has saved all of their lives and put their money into the account and have two little insurance to be comfortable. There's no such thing as a small business, as a former small business owner, it was big business for me. It is that sentiment that helps me appreciate that you understand not only what you are talking about, but who you are talking for.
▶ 1:58:08Chair Scott: And for me that is as important as what we are talking about. For senators who wish to submit questions for the record, they are due one week from today on the 17th. To our witnesses, you will have 45 days from that day to submit your responses to questions for the record. Thank you very much for educating and informing not only those of us in the bank, but those of us paying attention on c-span.