Ranking Member Waters Delivers Opening Statement at Deposit Insurance Roundtable: "…The Current Deposit Insurance System Should Be Strengthened So Regulators Don't Have to Rely on Emergency Authorities in the Future."

U.S. House Committee on Financial Services - Ranking Member Maxine Waters

June 23, 2023

Ranking Member Waters Delivers Opening Statement at Deposit Insurance Roundtable: "...The Current Deposit Insurance System Should Be Strengthened So Regulators Don't Have to Rely on Emergency Authorities in the Future."

WASHINGTON, D.C. - Today, Congresswoman Maxine Waters (D-CA), the top Democrat on the House Financial Services Committee, delivered the following opening statement at the Deposit Insurance Roundtable she convened:

Good afternoon, thank you for joining our Democratic Financial Services Committee Member Roundtable on deposit insurance reform. Before I begin, I would like to remind Members and our panel that today's roundtable is being live streamed and recorded."

The House Financial Services Committee has held hearings on the recent failures of Silicon Valley Bank, Signature Bank, and First Republic Bank - which represent the 2nd, 3rd, and 4th largest bank failures in U.S. history. While some progress is being made in Congress to respond to these events, I convened today's roundtable to focus on the urgent need to reform our deposit insurance system.

Before discussing deposit insurance reform, I would note that Committee Democrats have been offering sensible, targeted solutions to promote the safety and soundness of our banking system. We introduced our first wave of bills this week - eleven in all, including three of my own - to strengthen accountability for bank executives and bank risk management, among other reforms. I am pleased that the Senate Banking Committee, led by Chairman Brown, advanced a bipartisan bill on executive accountability that is very similar to my bill, H.R. 4208, the "Failed Bank Executives Accountability and Consequences Act." Both my bill and the Senate bill would give regulators more power, as President Biden requested, to claw back compensation of bank executives that run their banks into the ground, as well as to impose fines and bans to prevent them from leading other banks in the future.

I hope House Republicans will follow the Senate's lead and work with Committee Democrats to advance these proposals, but we cannot stop there. We must also strengthen protections for depositors.

From the moment we learned of Silicon Valley Bank's failure in March and the concern it caused many depositors, Committee Democrats have been closely monitoring and responding to these events to ensure every tool was being used to stabilize the situation.

I, and my Democratic colleagues, were on the phone with the FDIC, as well as the Fed and Treasury, to talk about how to employees as many of their employers held payroll accounts with SVB, but those accounts were not insured.

I was pleased when the Biden Administration, especially Treasury Secretary Yellen, worked closely with the FDIC and Federal Reserve to authorize a "systemic risk exception" to protect depositors and limit contagion. This action received unanimous support from the boards of the FDIC and the Fed, including from Republican board members.

But this marks the third episode in the last 15 years when the government acted to protect depositors beyond the traditional deposit insurance program that covers individual deposits up to $250,000.

The first episode happened during the 2008 financial crisis, when the systemic risk exception was used several times, most notably to establish the FDIC's Transaction Account Guarantee, or the TAG program. The TAG program allowed banks to pay a fee to protect deposits in noninterest-bearing transaction accounts. Later, Dodd-Frank required any similar broad-based program like TAG to require Congressional approval.

And the second episode was during the pandemic. Specifically, in the CARES Act, Congress authorized the FDIC to re-establish TAG, but FDIC did not need to in light of the deposit inflows banks saw with the emergency support our government provided to individuals and businesses.

Based on this history, the current deposit insurance system should be strengthened so regulators don't have to rely on emergency authorities in the future.

Further, the recent bank failures have reignited concerns regarding an implicit guarantee wherein only deposits at larger banks will reliably be safe in the event of a failure. This has contributed to a flight of deposits from smaller banks to bigger ones, raising concerns about the future of our nation's community banks.

I commend FDIC Chair Marty Gruenberg and his agency for helping in this effort by recently releasing a report with several options for deposit insurance reform, including:

* raising the $250,000 limit to a higher threshold;

* unlimited deposit insurance for everyone; and

* covering business payment accounts, like the payroll accounts of startup companies that were initially locked up when SVB failed.

These options for reform each have pros and cons for Congress to consider, and to help us do that, we have a panel of stakeholders and experts to discuss their views on deposit insurance reform to help us formulate a legislative proposal that will strengthen our banking system.

After I introduce the panel, I will invite each of them to share about 3 to 4 minutes of opening comments, and then we will open it up to Member questions.

First, we will hear from Jenna Burke, who is the Executive Vice President and General Counsel for the Independent Community Bankers of America. Then, we will hear from Nicole Elam, who is the President and Chief Executive Officer for the National Bankers Association. Then, we will hear from Lev Menand, who is joining us virtually and is Professor at Columbia Law School, a former Treasury Department senior advisor, and a former NY Fed economist. And finally, we will hear from Alison Touhey, who is Senior Vice President for Bank Funding Policy at the American Bankers Association.