Senate Banking Committee Considers "Perspectives on Deposit Insurance Reform"

Witnesses testified before the Senate Banking Committee on potential federal deposit insurance ("FDI") reforms.

At a hearing before the full Committee, the following witnesses offered their "perspectives on deposit insurance reform after recent bank failures":

• The Roosevelt Institute, Senior Program Manager for Corporate Power, Emily DiVito. Ms. DiVito argued that any deposit insurance scheme can only be "maximally successful if it coexists with complementary policies" to ensure proper oversight and accountability of financial systems. Ms. DiVito recommended that Congress consider taking action to support financial stability objectives by (i) reversing regulatory rollbacks (e.g., the Economic Growth, Regulatory Relief, and Consumer Protection Act) to increase supervisory discretion, (ii) amending liquidity requirements to help ensure banks hold enough liquidity for future sudden outflows and to mitigate associated stability risks, (iii) amending capital requirements in a way that would make shareholders "more sensitive to risk-taking" and (iv) reducing "moral hazard incentives."
• First Mutual Holding Company, CEO, Thomas J. Fraser. Mr. Fraser argued that any FDI reforms should center on "consumer protection (individuals and businesses) and confidence in the stability of our banking system." He maintained that earnings impacts are a "tertiary consideration." He recommended that Congress take into account the "changing risk landscape" since the 2008 financial crisis when assessing potential reforms. He cautioned that "new risks can fester unchecked with outdated policy tools." He also stated that the FDIC proved itself to be an "effective insurance provider and manager of banks of receivership" during the SVB/Signature bank failures. He encouraged Congress to provide the FDIC authority beyond the Systemic Risk Exemption to resolve failed banks.
• Mayer Brown, Partner, Andrew Olmem. Mr. Olmem argued that Congress should consider the accelerated speed of bank runs following SVB and improve the speed and effectiveness of bank resolutions. He recommended (i) amending the Federal Insurance Corporation Improvement Act to set "clearer parameter around the protection of uninsured depositors," (ii) establishing an assessment schedule for systemic risk exceptions to help banks to "proactively adjust their risk profiles to minimize their exposure to such assessments," (iii) improving the "reliability and operation of the discount window" to encourage its use as a "key policy tool to prevent economic shock from spreading throughout the banking system" and (iv) containing the use of federal deposit insurance in failed bank resolutions.