ABA Offers Recommendations to Modernize Deposit Insurance Framework
"[W]e believe these recommended changes would make the existing system more responsive in moments of financial stress, more transparent and fairer to the institutions participating in the system and the customers they serve."
Kenneth Kelly, Chair-elect of the American Bankers Association
"[W]e believe these recommended changes would make the existing system more responsive in moments of financial stress, more transparent and fairer to the institutions participating in the system and the customers they serve."
Kenneth Kelly, Chair-elect of the American Bankers Association
American Bankers Association ("ABA") Chair-elect Kenneth Kelly unveiled 10 recommendations, unanimously approved by the ABA Board, to reform deposit insurance and bank resolution processes.
In testimony before the Senate Banking Committee, Mr. Kelly emphasized that, while deposit insurance has long promoted stability by preventing runs and maintaining confidence in the financial system, recent bank failures exposed gaps in how the FDIC handles coverage levels, systemic risk determinations, and resolutions. Mr. Kelly said that modernization is needed to make it more responsive, transparent, and fair for banks of all sizes.
Mr. Kelly described the ABA's 10 recommendations which, he said, reflected the perspectives of banks of all sizes:
- Emergency Actions and Authority.
- Enhanced FDIC Coverage Authority. The ABA recommends that Congress pre-approve authority for the FDIC to create a temporary guarantee program during severe stress events, reducing the risk of contagion.
- Transparency in Systemic Risk. The ABA recommends that Congress require the FDIC to publish guidelines outlining when systemic risk determinations are warranted and how special assessment beneficiaries are identified.
- Deposit Insurance Coverage, the DIF, and Assessments.
- Data-Driven Coverage Limits. The ABA recommends that deposit insurance coverage limits should be empirically based, indexed to inflation, and supported by stronger data collection to analyze tradeoffs.
- Calibrated Deposit Insurance Fund. The ABA recommends that Congress and the FDIC reassess the size and structure of the Deposit Insurance Fund to ensure it is stable, risk-sensitive, and aligned with modern principles.
- Tax Deductibility of Assessments. The ABA recommends that Congress restore full deductibility of FDIC assessments by reversing restrictions imposed under the 2017 tax law.
- Optional Excess Coverage. The ABA recommends evaluating whether banks should be allowed to purchase additional FDIC-provided deposit insurance, which could be more cost-effective than private products.
- Bank Resolutions.
- Broadened "Least Cost" Test. The ABA recommends that Congress expand the FDIC’s least cost determination to consider broader impacts, including contagion and systemic risk, not just costs to the insurance fund.
- Community Bank Participation. The ABA recommends enhancing opportunities for community banks to participate in failed bank resolutions to preserve essential local banking services.
- Inclusive Asset Auctions. The ABA recommends the FDIC expand eligibility for bidders in failed-bank asset auctions to create fairer and more competitive resolution processes.
- Transparency in Resolution Approaches. The ABA recommends the FDIC publicly release resolution strategies for each case along with estimated costs to improve accountability.