Business meeting to consider the nomination of Stephen Miran, of New York, to be a Member of the Board of Governors of the Federal Reserve System; to be immediately followed by a hearing to examine evaluating perspectives on deposit insurance reform.

Banking, Housing, and Urban Affairs Committee

2025-09-10

Summary

The meeting primarily discussed the vulnerabilities exposed by recent bank failures, focusing on the implications for deposit insurance, small and mid-sized businesses, and national security[ 00:02:25-00:02:29 ] . Participants emphasized the need for legislative action to strengthen the financial system, ensure stability, and prevent future crises from disproportionately affecting smaller institutions and the vital services they provide to local economies[ 00:07:09 ]

Themes

Deposit Insurance Limits and Indexing

A central theme was the inadequacy of the current $250,000 FDIC deposit insurance limit, particularly for business operating accounts[ 00:02:36 ] . Speakers highlighted that a significant portion of deposits, as high as 95% at one failed bank, were uninsured, leaving businesses vulnerable[ 00:04:08 ]

. There was broad support for increasing this limit, with a common suggestion of $20 million for business payroll accounts, as this would cover the vast majority of operating accounts for small to mid-sized businesses. Furthermore, there was strong consensus that any new limit should be indexed to inflation to prevent it from becoming outdated over time[ 00:02:46 ] [ 00:04:17 ] . The discussion also touched upon whether personal accounts should see an increased limit, with some suggesting it should at least be indexed to inflation, reaching approximately $350,000 today[ 00:37:47 ] .

Impact on Small and Mid-Sized Banks and National Security

The failure of Silicon Valley Bank (SVB) led to significant deposit flight from smaller and mid-sized banks to larger institutions, creating an unstable financial environment[ 00:24:50 ]

. This migration not only stressed the smaller banks but also impacted their ability to lend to local businesses, potentially contracting the economy. Small firms are critical for defense innovation and supply chain resilience, providing billions in annual contracts for the Department of Defense (DoD). Instances were cited where firms building defense technology nearly missed payroll due to cash tied up in failing banks, posing national security risks.

Implicit Guarantee for Large Banks and Leveling the Playing Field

A recurring concern was that the "too big to fail" phenomenon grants an implicit government backstop to large banks, which smaller banks do not possess[ 00:02:25 ] [ 00:09:51 ]

. This uneven playing field encourages deposit flight to larger institutions during times of crisis, disadvantaging the community and mid-sized banks that are crucial for financing local businesses and economic growth[ 00:38:41 ] . The goal of proposed reforms is to level this playing field, ensuring that depositors can trust the safety of their funds regardless of the bank's size, thereby promoting a more diversified and resilient banking system[ 00:07:09 ] [ 00:44:09 ] .

Urgency and Cost of Reform

There was a strong consensus on the urgency of acting now, during a period of relative calm, rather than waiting for another crisis to strike[ 00:25:26 ]

. Discussions highlighted that historical decisions on deposit insurance have often been made in crisis, leading to reactive rather than proactive measures[ 00:19:21 ] [ 00:19:23 ] . Regarding the cost, it was noted that the Deposit Insurance Fund (DIF) is currently overfunded, suggesting that expanding coverage might not immediately trigger increased assessments, especially with a proposed 10-year phase-in plan[ 00:28:07 ] [ 00:55:39 ] . The sentiment was that banks, not taxpayers, should bear the costs of deposit insurance.

Tone of the Meeting

The tone of the meeting was serious, concerned, and urgent[ 00:25:26 ]

. Speakers displayed a shared understanding of the problems stemming from recent bank failures and the existing deposit insurance framework[ 00:02:29 ] . While there was broad agreement on the necessity for reform and the principle of indexing deposit limits, some details regarding the specific numerical limits and potential unintended consequences for smaller banks were debated[ 00:42:07 ] . Overall, the discussion was constructive and bipartisan, reflecting a commitment to finding effective legislative solutions[ 00:24:41 ] [ 00:54:08 ] .