Hearing Entitled: “The Future of Deposit Insurance"

Committee on Banking and Currency

2025-11-18

Loading video...

Source: Congress.gov

Summary

The hearing examined the future of the United States' deposit insurance framework, delving into potential reforms, associated costs, and their impact on depositor confidence.[ 00:13:13 ] Discussions centered on key questions for policymakers, including the problems to be solved, beneficiaries, costs, unintended consequences, and data gaps.[ 00:15:53-00:16:28 ]

Citation requires full transcript

Sign in to continue

Sign in
 While there was broad agreement on the need for modernization, no consensus was reached on the specific path forward.[ 00:13:41 ]

Themes

Deposit Insurance Reforms and Their Impact

The existing FDIC deposit insurance framework insures up to $250,000 per account, a limit that has remained unchanged since 2008 and covers approximately 99% of deposit accounts.[ 00:15:00 ]

Citation requires full transcript

Sign in to continue

Sign in
 Proponents of reform, such as Mr. James Ryan, advocate for increasing coverage, particularly for non-interest-bearing business accounts, to prevent deposits from fleeing to larger institutions during crises and to protect essential operating funds for small businesses. This, they argue, would strengthen the diversity and resilience of the banking system. The Employee Paycheck and Small Business Protection Act, proposed by Ranking Member Waters, suggests a data-driven approach to raise limits for business payment accounts and establish a Transaction Account Guarantee (TAG) program. Conversely, Ms. Jill Castilla and Mr. Grover Norquist contend that expanding coverage would primarily benefit larger banks, create moral hazard by encouraging risk-taking, weaken market discipline, and impose undue costs on smaller, well-managed institutions. They highlight that existing market tools, like reciprocal deposits and collateralization, effectively protect large depositors without burdening the FDIC or taxpayers.

The Role of Technology and Data Gaps

The swiftness of bank runs in 2023, driven by digital information and social media, underscored how quickly liquidity stress can unfold.[ 00:19:52 ]

Citation requires full transcript

Sign in to continue

Sign in
 Witnesses expressed concern that future bank runs could be exacerbated by agentic AI, requiring even faster and more robust responses.[ 01:45:41 ]

Citation requires full transcript

Sign in to continue

Sign in
 A significant challenge identified by multiple speakers, including Acting FDIC Chair Travis Hill, is the lack of granular data on uninsured deposits, making it difficult to assess the true costs and impacts of proposed reforms. Small banks, in particular, face burdens in reporting this data, potentially incurring significant annual costs and additional staffing needs. The need for real-time data collection and enhanced software to provide regulators with timely information was also emphasized.[ 01:47:00 ]

Citation requires full transcript

Sign in to continue

Sign in

Systemic Risk and Emergency Programs

Several participants advocated for the establishment of an Emergency Transaction Account Guarantee (ETAG) program to provide immediate protection during systemic crises. Mr. Chris Furlow, representing the Texas Bankers Association, proposed a two-step approach: implementing ETAG first to quickly stabilize the system, followed by comprehensive, data-driven reforms. This temporary, pre-authorized measure would replace existing bureaucratic processes and prevent bank runs across all institutions, not just those deemed "too big to fail." Mr. Jarryd Anderson supported reinstating a TAG-like program without congressional authorization to ensure speed during a financial panic, citing its potential to avert contagion seen in 2023.[ 00:45:37-00:46:18 ]

Citation requires full transcript

Sign in to continue

Sign in
 It was noted that preparation is key to managing crises, rather than reactive, expensive measures.

Diversity of the Banking System

The importance of a diverse banking system, comprising large national, midsize, and community banks, was a recurring theme. Community banks were highlighted as crucial for local lending and economic development, often serving communities that larger banks overlook. Minority Depository Institutions (MDIs) and Community Development Financial Institutions (CDFIs) were also recognized for their vital role in supporting rural and underserved communities.[ 01:16:09 ]

Citation requires full transcript

Sign in to continue

Sign in
 The fear of further consolidation, particularly if deposit insurance reforms are not carefully implemented, was a shared concern, as it could undermine the competitive advantage and relationship-based banking offered by smaller institutions.

Tone of the Meeting

The tone of the meeting was largely deliberative and cautious, with a strong emphasis on a data-driven approach to understanding and addressing the complexities of deposit insurance reform.[ 00:13:38 ] There was a clear sense of concern about the stability of the banking system, the potential for future crises, and the unintended consequences of any policy changes.[ 00:15:53 ]

Citation requires full transcript

Sign in to continue

Sign in
 While speakers expressed urgency in preparing for future events given the speed of modern financial markets, there was significant division and no consensus on the best solutions or the exact nature of the problem, particularly regarding the extent of coverage and the role of private vs. public guarantees.[ 00:13:41 ]

Participants

Transcript

Thank you.   The Committee 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 four-minute opening statement.   Today'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 data-driven.  As we'll hear from our expert witnesses today, there's a wide-ranging set of views on this matter with no consensus.   When it comes to deposit insurance reforms, there are no easy answers and choices always come with trade-offs.  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.   A discussion about deposit insurance cannot be complete unless we also talk about the much needed 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.   They were the result of poor risk management by certain regional banks and the failure of federal and state supervisors to identify fixed 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.  That'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.   Going back to its creation during the Great Depression, the FDIC's Deposit Insurance Fund was intended to stabilize the banking system and now insures up to $250,000 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.  This new framework carried a presumption that large depositors, such as corporations and wealthy individuals, had the capacity and resources to properly assess their banks' 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.  What 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 consequences?   Do we have the data to make an informed decision?  And if not, what are the gaps?  Our guiding principles should be to ensure the stability of the banking system, maintain depositor confidence, fairly apportion costs, enforce market discipline, and reduce moral hazard.
With 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.
M
Mr. James Ryan
Thank you very much, Mr. Chairman.  Good morning.  Thank you to our witnesses for being here today to discuss deposit insurance.  I wish 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?  All to avoid lowering health costs for working class Americans.  Now, during the shutdown, I visited food banks all across Los Angeles County and saw lines of families who were being used as political leverage.  Afraid their babies might starve as Trump fought twice in the Supreme Court.   to block their food stamp benefits.  I heard federal employees agonize over how to keep a roof over their heads after missed paychecks.  I heard the worries of furloughed workers wondering if they'd even get paid after the shutdown following Trump's threats.  Meanwhile, millions of families are now watching their healthcare premiums triple.  Then 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 paid vacation and remained deafening silent.   At 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.

Sign up for free to see the full transcript

Accounts help us prevent bots from abusing our site. Accounts are free and will allow you to access the full transcript.

Sign up