Press Releases

Yesterday, the House Committee on Financial Services, led by Chairman French Hill (AR-02), held a hearing examining the current deposit insurance framework in the United States. Members and witnesses assessed the potential costs and benefits of proposed reforms and explored considerations from both policymakers and financial institutions.

On Classifying Transaction Accounts:

“One 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 higher limits, especially since deposits would shift to accounts with higher insurance limits. Another 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 interest bearing and non-interest bearing account classifications,” said Chairman Hill.

On the Data Needed for Major Framework Changes: 

During his questioning, Digital Assets, Financial Technology, and Artificial Intelligence Subcommittee Chair Bryan Steil (WI-01) asked, “Do you think the current data the FDIC has is sufficient to enact any of the proposals that we're talking about?” To which Mr. Chris Furlow, President and Chief Executive Officer, Texas Bankers Association, responded, “I think we've got more work to do. … We need more data.” Mrs. Jill Castilla, President and Chief Executive Officer, Citizens Bank of Edmond, also responded, "Investment 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, or another person, to be able to handle the data analytics."

“Only with accurate information can we form a clear 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,” stated Rep. William Timmons (SC-04).

“We know that more than 99% of deposits are already insured under the current limit, yet we lack in-depth data on how many businesses or personal accounts would be affected by increasing that limit,” said Rep. Roger Williams (R-TX). 

On Trust in Our Banking System:

“Changes 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, G-SIBs, that is our competitive advantage. We must also consider the potential for moral hazard, how reforms will impact the smallest financial institutions… Public 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,” said Financial Institutions Subcommittee Chair Andy Barr (KY-06).

“Missouri represents what makes our banking system great. These varied institutions can address the different needs of our community. … Any 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,” stated Capital Markets Subcommittee Chair Ann Wagner (MO-02).

“… that is why this hearing is so important. You have different banks, different sizes, different regions, different assets and exposure allocations. So, we need to be careful trying to come up with a one size fits all. … this is a very complex issue. … and we have to be careful as we move forward,” said Rep. Andy Ogles (TN-05).

On if Increasing Deposit Insurance Raises Costs for Banks:

"It seems to be based on a provision in the bill that deals with how the FDIC calculates the deposit insurance fund's reserve ratio. It directs the agency to not count the full amount of newly insured deposits, and instead spreads costs out over ten years, which appears to be an accounting sleight of hand to prevent the reserve ratio from going below its statutory minimum," declared National Security, Illicit Finance, and International Financial Institutions Subcommittee Chair Warren Davidson (OH-08).

“… it’s a buy now, pay later concept, so it also squeezes in that deposit insurance fund number very close to that [statutory minimum], well you’re using money that we already paid in to be able to subsidize the cost of that, and you’re also not fully realizing, through this manipulation of funny math, to be able to say this is truly the liabilities that were exposed. They’re booking all of that insurance in real time but then paying for it for 10 years... if there is a failure during that time frame, the [deposit insurance fund] will not be able to handle that type of loss, and [small banks] will be exposed for a special assessment, as well as other community banks,” said Mrs. Castilla.

Witnesses Echoed the Work of the Committee:

Mrs. Castilla said, “Congress should focus on improving the system, not inflating it. At the same time, the regulatory burden on community banks continues to rise, often without regard to scale or business model. That burden limits our ability to serve the very communities that rely on us most. What community banks need is clarity, proportionality, and rules that reflect how we actually operate, manage and mitigate risk to our depositors, our communities, and the Deposit Insurance Fund.”

Mr. Grover Norquist, Founder and President, Americans for Tax Reform said, “The proposal to raise deposit insurance coverage will not deter future bank failures but increase their costs when they occur and leave taxpayers footing the bill. Given the government’s poor track record in attempting to insulate the financial sector from all types of risk, more intervention in the banking sector is unwarranted. Deposit insurance was created to protect consumers and maintain confidence in the banking system, not to absolve corporations and wealthy individuals from the consequences of their risk-taking. The FDIC claims that no depositor has ever lost money at an insured institution. This statement deceptively overlooks the fact that while most depositors are made whole, bank failures disrupt normal business activity and customers lose access to services. That is why it is especially important to prevent bank failures rather than treating deposit insurance as a cure-all. Increases in federal guarantees shift risks from those who should bear the burden to the public. This breeds moral hazard, the tendency of actors to take greater risks when they know losses will be socialized. Rather than curtailing systemic risk, expanding deposit insurance would fuel it.”

Mr. Furlow said, “Current processes to address systemic risk are antiquated and do not keep up with contagion that now runs at digital speed and with a 24-hour news cycle. We must have deposit insurance that helps prevent systemic failure first—rather than first arguing over who pays when the system fails to stop it. … Deposit Insurance is not a government bailout of banks. Banks pay deposit insurance premiums. Yet, as 2023 demonstrated, our community, mid-size and regional banks were not just put at risk, they were stiffed and are subject to ongoing reserve ratio premiums. At the time of the SVB and Signature Bank failures, the government could not say if it would follow through to protect those that paid deposit insurance. A comprehensive deposit insurance system for the 21st Century should address this inequity.”

Mr. James Ryan, Chairman and Chief Executive Officer, Old National Bancorp said, “I urge Congress to enact targeted deposit insurance for business operating accounts. No bailouts. No special favors. A precise fix so paychecks clear, confidence holds, and Main Street dollars keep working locally. On operating deposits, customers should be agnostic to bank size—GSIB or not. Modernizing insurance for these accounts is the clearest way to cut run risk, keep capital in communities, and fortify America’s diversified banking middle. Mid-size banks deserve the same protection, and Main Street deserves the same confidence.”

Mr. Jarryd E. Anderson, Partner and Co-Chair, Financial Services Group, Paul, Weiss, Rifkind, Wharton & Garrison LLP said, “Aside from costs in the form of higher assessments on banks, raising the deposit insurance limit imposes another important issue: moral hazard, which is a concern in any system of insurance. Moral hazard arises when being insured against a risk creates an incentive to take greater risks than one otherwise would. At least in theory, depositors who stand to lose their funds in the event of their bank’s failure should have a stronger incentive to monitor the risks being taken by the bank and impose a form of market discipline by, for example, removing their deposits from the bank if the risks are too great, or demanding higher returns. Increasing the deposit insurance limit reduces this theoretical depositor discipline. Similarly, a higher deposit insurance limit would theoretically give insured banks the incentive to take on greater risks, since more of their potential losses would be borne by the insurer.”

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