    [House Hearing, 119 Congress]
    [From the U.S. Government Publishing Office]

                        THE FUTURE OF DEPOSIT INSURANCE:
                            EXPLORING THE COVERAGE,
                        COSTS, AND DEPOSITOR CONFIDENCE
    =======================================================================

                                    HEARING

                                   BEFORE THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED NINETEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               NOVEMBER 18, 2025

                                   __________

                               Serial No. 119-44

           Printed for the use of the Committee on Financial Services

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                www.govinfo.gov

                                  __________

                   U.S. GOVERNMENT PUBLISHING OFFICE
    63-433 PDF            WASHINGTON : 2026
    =======================================================================

                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                        FRENCH HILL, Arkansas, Chairman

    BILL HUIZENGA, Michigan, Vice        MAXINE WATERS, California, Ranking
        Chairman                             Member
    FRANK D. LUCAS, Oklahoma             SYLVIA R. GARCIA, Texas, Vice
    PETE SESSIONS, Texas                     Ranking Member
    ANN WAGNER, Missouri                 NYDIA M. VELAZQUEZ, New York
    ANDY BARR, Kentucky                  BRAD SHERMAN, California
    ROGER WILLIAMS, Texas                GREGORY W. MEEKS, New York
    TOM EMMER, Minnesota                 DAVID SCOTT, Georgia
    BARRY LOUDERMILK, Georgia            STEPHEN F. LYNCH, Massachusetts
    WARREN DAVIDSON, Ohio                AL GREEN, Texas
    JOHN W. ROSE, Tennessee              EMANUEL CLEAVER, Missouri
    BRYAN STEIL, Wisconsin               JAMES A. HIMES, Connecticut
    WILLIAM R. TIMMONS, IV, South        BILL FOSTER, Illinois
        Carolina                         JOYCE BEATTY, Ohio
    MARLIN STUTZMAN, Indiana             JUAN VARGAS, California
    RALPH NORMAN, South Carolina         JOSH GOTTHEIMER, New Jersey
    DANIEL MEUSER, Pennsylvania          VICENTE GONZALEZ, Texas
    YOUNG KIM, California                SEAN CASTEN, Illinois
    BYRON DONALDS, Florida               AYANNA PRESSLEY, Massachusetts
    ANDREW R. GARBARINO, New York        RASHIDA TLAIB, Michigan
    SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York
    MIKE FLOOD, Nebraska                 NIKEMA WILLIAMS, Georgia
    MICHAEL LAWLER, New York             BRITTANY PETTERSEN, Colorado
    MONICA DE LA CRUZ, Texas             CLEO FIELDS, Louisiana
    ANDREW OGLES, Tennessee              JANELLE BYNUM, Oregon
    ZACHARY NUNN, Iowa                   SAM LICCARDO, California
    LISA McCLAIN, Michigan
    MARIA SALAZAR, Florida
    TROY DOWNING, Montana
    MIKE HARIDOPOLOS, Florida
    TIM MOORE, North Carolina
                          Ben Johnson, Staff Director

                             C  O  N  T  E  N  T  S

                                  ----------

                           Tuesday, November 18, 2025

                                                                       Page

                               OPENING STATEMENTS

    Hon. French Hill, Chairman of the Committee on Financial
      Services, a U.S. Representative from Arkansas..................     1
    Hon. Maxine Waters, Ranking Member of the Committee on Financial
      Services, a U.S. Representative from California................     2

                                   STATEMENTS

    Hon. Andy Barr, Chairman of the Subcommittee on Financial
      Institutions, a U.S. Representative from Kentucky..............     4
    Hon. Bill Foster, Ranking Member of the Subcommittee on Financial
      Institutions, a U.S. Representative from Illinois..............     4

                                   WITNESSES

    Mr. James Ryan, Chairman and Chief Executive Officer, Old
      National Bancorp...............................................     5
        Prepared Statement...........................................     8
    Mrs. Jill Castilla, President and Chief Executive Officer,
      Citizens Bank of Edmond........................................    11
        Prepared Statement...........................................    13
    Mr. Chris Furlow, President and Chief Executive Officer, Texas
      Bankers Association............................................    25
        Prepared Statement...........................................    28
    Mr. Grover Norquist, Founder and President, Americans for Tax
      Reform.........................................................    33
        Prepared Statement...........................................    35
    Mr. Jarryd E. Anderson, Partner and Co-Chair, Financial Services
      Group, Paul, Weiss, Rifkind, Wharton & Garrison LLP............    45
        Prepared Statement...........................................    47

                                    APPENDIX

                       MATERIALS SUBMITTED FOR THE RECORD

    Hon. Bill Huizenga:
        American Bankers Association (ABA)...........................   126
        American Mutual Share Insurance Corporation (ASI)............   140
        American Action Forum (AAF)..................................   142
        Christopher Williston IV: Independent Bankers Association of
          Texas (IBAT)...............................................   150
        Wall Street Editroial Board: How to Make Banks Less Safe.....   153
        Americans for Prosperity (AFP)...............................   157
        Council for Citizens Against Government Waste (CCAGW)........   159
        Competitive Enterprise Institute (CEI).......................   161
        Norbert Michel: Cato Institute...............................   163
        National Taxpayers Union (NTU)...............................   165
        David Burton: Should Taxpayers Be on the Hook for Bailing out
          Large Corporations? New Legislation Suggests Yes...........   167
        Dan Savickas: New Proposal Raises Price Tag for Deposit
          Insurance Reform Rises to $42B.............................   171
        Thomas Phillipson: Expanding Deposit Insurance is RobinHood
          in Reverse.................................................   174
        Eric Ventimiglia: Pinpoint Policy Institute..................   176
    Hon. Andy Barr:
        Emergency Transaction Account Guarantee program (E-TAG)......   183
    Hon. Warren Davidson:
        Conservative Coalition.......................................   191
        American Mutual Share Insurance Corporation (ASI)............   140
    Hon. Troy Downing:
        Conservative Coalition.......................................   191
    Hon. Roger Williams:
        Unleash Prosperity and Unleash Prosperity Now................   193

                     RESPONSES TO QUESTIONS FOR THE RECORD

    Written responses to question for the record from Representative
      Ann Wagner
        Mr. James Ryan...............................................   197

                                  LEGISLATION

    H.R. --------, to require the FDIC and NCUA to carry out an
      analysis to determine whether insurance coverage should be
      raised on covered transaction accounts, and for other purposes.   199
    H.R. ------, the Growing Deposit Insurance for the Future Act....   207
    H.R. --------, to authorize the FDIC and NCUA to establish
      emergency transaction account guarantee programs, and for other
      purposes.......................................................   209
    H.R. 4551, the Employee Paycheck and Small Business Protection
      Act............................................................   222
    H.R. --------, the Enhancing Bank Resolution Participation Act...   244
    H.R. --------, the Least Cost Exception Act......................   249
    H.R. --------, the Failing Bank Acquisitions Fairness Act........   255

                        THE FUTURE OF DEPOSIT INSURANCE:
                            EXPLORING THE COVERAGE,
                        COSTS, AND DEPOSITOR CONFIDENCE

                                  ----------

                           Tuesday, November 18, 2025

                         U.S. House of Representatives,
                               Committee on Financial Services,
                                                       Washington, D.C.

        The committee met, pursuant to notice, at 10:03 a.m., in
    room 2128, Rayburn House Office Building, Hon. J. French Hill
    [chairman of the committee] presiding.
        Present: Representatives Hill, Lucas, Sessions, Huizenga,
    Wagner, Barr, Williams of Texas, Loudermilk, Davidson, Rose,
    Steil, Timmons, Stutzman, Meuser, Kim, Garbarino, Fitzgerald,
    Flood, Lawler, De La Cruz, Ogles, Downing, Haridopolos, Moore,
    Waters, Sherman, Meeks, Scott, Lynch, Green, Himes, Foster,
    Beatty, Vargas, Gottheimer, Gonzalez, Casten, Pressley, Tlaib,
    Garcia, Williams of Georgia, Pettersen, Fields, Bynum, and
    Liccardo.
        Chairman Hill. 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 4-minute opening statement.

        OPENING STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE
      COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
                                ARKANSAS

        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 will hear from our expert witnesses today, there is 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 tradeoffs. That is
    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 us 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 and fix 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 banks' identified deficient management
    decisions and the resulting impacts on capital. The banks were
    insolvent, and increased deposit insurance would not have fixed
    that.
        That is 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 are
    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
    The Federal Deposit Insurance Corporation's (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
    percent 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 bank's
    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 are 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? If not,
    what are the gaps?
        Our guiding principle 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
    am grateful for our colleagues' attendance, and I yield back
    the balance of my time.
        Now I will recognize the ranking member of our full
    committee, Ms. Waters, for 4 minutes for an opening statement.

    OPENING STATEMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE
      COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
                               CALIFORNIA

        Ms. Waters. 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 2 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 would 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 silence.
        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.
        Thanks to Trump and Republicans, Americans are suffering
    through an affordability crisis with little hope in sight.
        Trump's response has been to dismiss Americans' concerns as
    a, quote, con, unquote. Well, it takes one to know one.
        The American people see through Trump's con of giving
    handouts and favors for the super-rich while raising prices on
    everyday Americans.
        It is why more than half of Americans are unhappy with the
    direction of the economy under Republicans and blame Trump for
    the high cost.
        Now, on deposit insurance.
        Since the fall of Silicon Valley Bank in 2023, I have led
    the effort to advance reasonable solutions to support our
    community banks and credit unions while protecting small
    businesses so they can bank with their local lenders and pay
    their workers even in a crisis.
        I am pleased the chairman has convened this hearing and
    posted my legislation.
        Thank you, Mr. Chairman.
        The legislation, the Employee Paycheck and Small Business
    Protection Act, quote, unquote.
        My bill takes a data-driven approach to increase the
    deposit insurance limit for business payment accounts while the
    FDIC and National Credit Union Administration (NCUA) study.
        My bill also allows regulators to quickly establish a
    transaction account guarantee program to prevent contagion and
    temporarily protect depositors for up to 9 months in a future
    emergency.
        Even Treasury Secretary Bessent and Vice President Vance
    agree that action on deposit insurance reform is overdue.
        While reviewing the Republican proposals, I am hopeful that
    the chairman will work with me and all of our colleagues so we
    can get something done.
        I think we can have bipartisan on this one, Mr. Chairman.
    So, I look forward to the testimony. I yield back.
        Chairman Hill. The gentlewoman yields back.

     STATEMENT OF HON. ANDY BARR, CHAIRMAN OF THE SUBCOMMITTEE ON
      FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE FROM KENTUCKY

        I now recognize the chair of our Subcommittee on Financial
    Institutions, Mr. Barr of Kentucky, for a 1-minute opening
    statement.
        Mr. Barr. Following the banking instability of 2023, there
    were calls to reform deposit insurance. Members on this
    committee did not rush to enact legislation that might have
    resulted in unintended convinces but rather took the time to
    examine potential reforms, and today's hearing is a result of
    this education.
        Properly calibrated deposit insurance is paramount to
    protect taxpayers and the stability of our banking system.
    Changes in the banking landscape, such as online banking, can
    create real-time risks, and an increase in uninsured deposits
    has posed questions about the current status quo.
        As we consider any potential deposit insurance reforms, our
    goal should be to protect the diversity of our banking system,
    community banks, mid-size banks, regional banks, Global
    Systemically Important Banks (G-SIBs). That is our competitive
    advantage.
        We must also consider the potential for moral hazard, how
    reforms will impact the smallest financial institutions'
    assessments.
        Public trust in our banking system through FDIC insurance
    cannot be lost. It is our job as Members of Congress to protect
    this trust, taxpayers, and the diversity and stability of the
    banking system.
        I look forward to examining the deposit insurance landscape
    in today's hearing.
        Chairman Hill. The gentleman yields back.
        I recognize the ranking member from the Subcommittee on
    Financial Institutions, Dr. Foster of Illinois, for a 1-minute
    opening statement.

         STATEMENT OF HON. BILL FOSTER, RANKING MEMBER OF THE
     SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE
                             FROM ILLINOIS

        Mr. Foster. Thank you, Chairman Hill and Ranking Member
    Waters.
        Deposit insurance has been one of the real triumphs of
    financial regulation of the last 100 years.
        Prior to the FDIC's creation, there was a steady drumbeat
    of banking failures and people simply did not know that their
    money would be safe in a bank.
        After that, today every depositor of a U.S. bank or credit
    union knows that their financial institution, if it ever gets
    in trouble, the deposits less than $250,000 will be protected,
    and this is essential to stopping the contagion, which was the
    true systemic risk of the events of 2023.
        However, social media, technology, and consumer behaviors
    have evolved a lot since 2008, and the events of 2023 were a
    warning that technology-driven bank runs of today can be much
    larger and faster.
        So this committee, I agree, should take a data-driven
    approach to deposit insurance reform with a full understanding
    of the costs and benefits of the reform.
        So I thank the chairman for noticing this hearing and look
    forward to the witnesses' testimony.
        Chairman Hill. The gentleman yields back.
        Today we are delighted to have the testimony of Mr. James
    Ryan, chairman and CEO of Old National Bancorp; Mrs. Jill
    Castilla, president and CEO of the Citizens Bank of Edmond,
    Oklahoma; Mr. Chris Furlow, the president and CEO of the Texas
    Bankers Association; Mr. Grover Norquist, founder and president
    of Americans for Tax Reform; and Mr. Jarryd Anderson, partner
    and co-chair of the Financial Services Group at Paul, Weiss.
        We are delighted to have you.
        Each of you will be recognized for 5 minutes to give an
    oral presentation of your testimony. Without objection, your
    written statements will be made a part of the record.
        Mr. Ryan we are going to start with you. You are recognized
    for 5 minutes.

    STATEMENT OF JAMES RYAN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
                          OLD NATIONAL BANCORP

        Mr. Ryan. Chairman Hill, Ranking Member Waters, and members
    of the committee, thank you for the opportunity to testify. I
    am Jim Ryan, chairman and CEO of Old National Bank, an
    Evansville, Indiana-based institution with $71 billion in
    assets and more than 350 locations across the Midwest.
        I am proud to say Old National has been serving clients and
    strengthening communities since 1834. I am also pleased to
    serve as a board member of the Mid-Size Bank Coalition of
    America and as vice chair of the American Bankers Association,
    but I am here today representing Old National Bank.
        I think my views are consistent with other mid-size bank
    CEOs. America's banking system is strongest when it includes
    large national banks, mid-size banks like Old National, and
    smaller community banks. This diversity creates resilience and
    ensures that all communities enjoy access to financial
    services.
        Since the 2008 financial crisis, large banks have grown
    significantly. Yet the reality is they do not serve all
    communities or all businesses. Meanwhile, the number of smaller
    banks continues to decline.
        To support a healthy economy and vibrant communities, we
    need banks of all sizes working together. As I mentioned, Old
    National has been in operation for nearly 200 years serving
    clients and communities that our Nation's largest banks
    sometimes overlook.
        Like all mid-size and community banks, our ability to keep
    credit flowing locally depends on confidence in deposits, and
    today's FDIC insurance limit of 250,000, unchanged since 2008,
    has not kept pace with the growth of the economy and the speed
    of money and information.
        We live in a world where money and information move at
    digital speed. As a result, liquidity stress can unfold at
    digital speed as well.
        We saw this in March 2023. Deposits left mid-size and
    community banks while the largest banks reported tens of
    billions of dollars of inflows without raising rates.
        Uninsured business operating accounts drove deposit flight
    to the largest banks, not because of price, but because of the
    perception of safety. That inequity undermines trust,
    concentrates risk, and drains funding from the banks that
    finance Main Street.
        A solution such as the Main Street Depositor Protection
    Act, introduced by Senators Hagerty and Alsobrooks, is narrow
    by design, targeting FDIC coverage for non-interest-bearing
    accounts used for payroll, payables, and working capital.
        As you know, moral hazard arises when insurance encourages
    risk-taking or yield-chasing. That does not exist with non-
    interest-bearing operating accounts.
        These balances are not attracted by offering higher
    returns. They exist only to fund payroll and daily operations.
        This reform is about protecting paychecks and critical
    payment systems, not shielding banks. We are not talking about
    ensuring speculative investments or personal wealth accounts.
    We are talking about the operating cash that keeps employees
    paid.
        This gives Main Street businesses the confidence to
    maintain their existing deposit relationships with banks and
    bankers who truly know them and their businesses.
        This reduces systemic risk, lowers the threat of widespread
    deposit flight, and preserves local lending capacity.
        This reform is also industry funded through risk-based
    assessments. No taxpayer appropriations.
        Some have charged that deposit insurance modernization will
    entail significant costs to institutions. However, the greatest
    costs come from inaction--higher wholesale borrowing, repeated
    emergency measures, and lost long-time relationships.
        The estimated cost of deposit insurance reform is somewhere
    between two to five basis points. This modest risk-based
    premium is substantially lower than the 25 to 50 basis points
    typically incurred through wholesale funding or emergency
    borrowing.
        The Federal Reserve's analysis confirms that in 2023 banks
    experiencing deposit outflows were forced to replace lost
    deposits with higher-cost borrowing, underscoring the reform's
    cost-effectiveness.
        Our Nation's mid-size and community banks are the
    connective tissue between local deposits and local lending.
    When operating cash feels safe and secure at hometown banks, we
    can keep doing what we do best: turning deposits into loans for
    equipment, working capital, and expansion, along with
    reinvesting in and driving economic growth within our
    communities.
        The Main Street Depositor Protection Act is not about
    bailouts or special favors. It is about modernizing insurance
    for accounts that keep Main Street America thriving so that
    confidence holds, paychecks clear, and our Nation's banking
    system stays diverse and resilient.
        I urge Congress to enact targeted deposit insurance reform
    for business operating accounts. Modernizing insurance for
    these accounts is the most straightforward way to reduce risk,
    keep capital in our local communities, and fortify America's
    strong and diversified banking system.
        Thank you for the opportunity to testify. I look forward to
    your questions.

        [The prepared statement of Mr. Ryan follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Hill. Thank you, Mr. Ryan.
        Mrs. Castilla, you are now recognized for 5 minutes for
    your oral remarks.

       STATEMENT OF JILL CASTILLA, PRESIDENT AND CHIEF EXECUTIVE
                    OFFICER, CITIZENS BANK OF EDMOND

        Mrs. Castilla. Chairman Hill, Ranking Member Waters, and
    members of the committee, thank you for the opportunity to
    testify. My name is Jill Castilla, chairman, president, and CEO
    of Citizens Bank of Edmond in Oklahoma.
        I founded ROGER, a digital military bank, based on my
    experience as a prior servicemember, military spouse, and
    parent of two current servicemembers.
        I also previously served on the Federal Reserve's Federal
    Advisory Council during 2022 to 2024, a period of severe market
    stress, which informs my perspective today.
        Citizens Bank of Edmond is recognized nationally as one of
    the most innovative, resilient community banks in the United
    States. We operate a single location with about $400 million in
    assets. We compete and win against institutions many times our
    size. We are one of only 15 women-owned banks in the country.
        My message is simple: The 2023 turmoil was a crisis of
    confidence, not a crisis of coverage. The failures of Silicon
    Valley Bank, Signature, and First Republic stemmed from
    concentrated uninsured deposits, poor liquidity and interest
    rate risk management, and a breakdown in communication with
    customers, not from FDIC limit.
        Customers left these banks because trust failed. Community
    banks that engaged transparently kept deposits stable.
        Any policy decisions aimed at reforming deposit insurance
    coverage must take a holistic approach and not provide a gift
    to large regional banks.
        During the 2023 turmoil, following widespread news coverage
    of the impending collapse of Silicon Valley Bank, we called our
    customers before they called us.
        Within hours, we reached every depositor with uninsured
    balances and explained precisely how existing tools--reciprocal
    deposits, Federal Home Loan Bank letters of credit, and
    collateralization--could fully protect their funds.
        We publicly shared our uninsured-deposit ratio, liquidity,
    and capital strength, and invited direct contact with me.
        Customers stayed and many brought new deposits because
    facts and transparency built and sustained confidence.
        Deposit insurance as designed works. For 90 years, no
    depositors lost a penny of insured funds. The $250,000 limit
    already covers 99 percent of accounts, and my bank has roughly
    90 percent of deposit balances fully insured. For larger needs,
    market tools extend protection without burdening the FDIC or
    taxpayers.
        Dramatically expanding coverage would create moral hazard,
    weaken market discipline, and distort competition. It would
    primarily benefit a small set of large regional and national
    institutions that hold the most uninsured balances, entrenching
    their advantages while spreading replenishment costs across the
    entire industry, including thousands of smaller well-managed
    banks.
        Claims that such expansion targets small business are
    overstated. True small businesses already achieve full
    protection through existing limits and reciprocal networks.
    Infusing government-subsidized liquidity into regional banks
    and large credit unions could further accelerate industry
    consolidation of community banks.
        Expanded coverage would also invite gaming, shifting
    balances among account types or compensating depositors through
    side arrangements to qualify for guarantees, further eroding
    fairness and discipline.
        The cost of expanded coverage and its unintended
    consequences must be fully explored. There seems to be an
    imbalance of limited benefits with extreme cost exposure in
    nearly all avenues considered.
        By contrast, the current suite of market tools is effective
    and regulated. Collateralization, Federal Home Loan Bank
    letters of credit, and reciprocal deposits deliver full
    protection, same-day liquidity, and transparency, while
    embedding guardrails that limit access by troubled
    institutions, aligning safety with accountability rather than
    socializing risk.
        These approaches strengthen relationships and keep deposits
    local without expanding Federal guarantees.
        Frankly, there are so many ways that we can help community
    banks, including enacting many of the bills that have passed in
    this committee rather than arbitrarily raising the deposit
    insurance limits.
        Real reform must focus on clarity, proportionality, and
    data-driven oversight that reflects how community banks
    operate. Tailored regulation and capital would improve safety
    and fairness without inflating guarantees.
        Any proposal to alter coverage must be accompanied by
    honest, transparent analyses of costs, beneficiaries, and
    risks.
        Bottom line, stability comes from responsibility, not
    blanket guarantees. Expanding deposit insurance to cover
    multimillion-dollar accounts is a shortcut that creates moral
    hazard, rewards the largest beneficiaries, and penalizes the
    institutions that do things right.
        Confidence is built by communication, competence, and
    integrity, the strength community banks demonstrated in 2023
    and every day on Main Street.
        Thank you. I look forward to your questions.

        [The prepared statement of Mrs. Castilla follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Hill. The gentlewoman yields back.
        Mr. Furlow, you are recognized for 5 minutes.

       STATEMENT OF CHRIS FURLOW, PRESIDENT AND CHIEF EXECUTIVE
                   OFFICER, TEXAS BANKERS ASSOCIATION

        Mr. Furlow. Chairman Hill, Ranking Member Waters, and
    members of the committee, thank you for the invitation to
    testify on behalf of the Texas Bankers Association on the
    proposed two-step deposit insurance strategy.
        We appreciate that there are a number of deposit insurance
    reform proposals before Congress, including the ranking
    member's bill, and on the Senate side the bill by Senators
    Hagerty and Alsobrooks.
        We are not here today to oppose those bills but to provide
    immediate protection of the banking system while allowing time
    to appropriately collect missing data and to evaluate the best
    approach to achieve overdue and permanent modernization.
        The risk and competitive structure of today's marketplace
    is dramatically different than it was when FDIC was created in
    1933, yet the objective of providing depositor confidence
    remains critical.
        Looking back to 2023, the social media-driven Silicon
    Valley Bank (SVB) bank failure nearly brought the banking
    system to its knees over a nerve-racking weekend. It was
    quickly followed by the failure of Signature Bank.
        Yet, across America, community and regional banks, through
    no fault of their own, were suddenly at risk from a deposit
    insurance system not up to the task.
        Depositors moved large sums of capital to institutions
    believed to be too big to fail, to government money market
    funds, and to other perceived safe havens.
        It was destabilizing, and regulators scrambled to put
    facilities in place before the markets opened on Monday.
        Simply put, we got lucky.
        Current systemic risk processes are antiquated and
    vulnerable to contagion that can now run at digital speed and
    within a 24-hour news cycle.
        Deposit insurance must help prevent systemic risk first
    rather than first arguing over who pays when the system fails
    to stop it.
        With no firm consensus within industry or Congress, we
    strongly support a multi-stakeholder two-step process to
    provide immediate system protection while enabling data-driven
    and long-term reforms.
        The two-step plan is not just supported by the Texas
    Bankers Association. It is a collaborative approach backed by
    the Arkansas Bankers, Colorado Bankers, Kentucky Bankers,
    Missouri Bankers, Oklahoma and New Hampshire Bankers.
        Together, these associations from middle and Main Street
    America represent over a thousand banks, nearly one quarter of
    FDIC-insured institutions.
        Our first step, an Emergency Transaction Account Guarantee,
    or E-TAG, capability. Deposit insurance must be a prophylaxis
    against bank runs, not a reactionary facility.
        With the confidence it can provide, impacts to the Deposit
    Insurance Fund can be prevented in the first place, which helps
    avoid expensive and always contentious assessments.
        Our E-TAG proposal would ensure that in a systemic
    emergency depositors at banks of all sizes are protected, not
    just those at institutions deemed too big to fail. Our approach
    was designed to address the 2023 shortfalls that put the system
    on edge.
        This includes stopping contagion. The E-TAG proposal
    provides a 120-day period in which there is full coverage of
    transaction accounts at banks of all sizes, not just the
    largest.
        This will preserve confidence as the 120-day period allows
    precipitating conditions to subside.
        The 120-day period also allows collection of a full post-
    event quarter of data to inform forward-looking decisionmaking
    by Congress, the administration, and regulators.
        Bureaucratic delay.
        In the digital social media age our proposal would replace
    Fed FDIC processes that are far too bureaucratic when time is
    of the essence and depositor confidence is at most risk.
        With notice to the FDIC and Fed, our proposal enables the
    Treasury Secretary to invoke systemic risk authority to quickly
    implement the E-TAG program without delays.
        Moral hazard.
        The 120-day period is for systemic emergencies and is by
    design temporary to avoid concerns related to moral hazard, and
    there are checks and balances in our E-TAG proposal as any
    extension beyond 120 days would require congressional approval.
        The E-TAG approach will ensure that the system helps
    prevent bank runs, in contrast to 2023 when uncertainty caused
    too many community and mid-size banks to experience deposit
    flight.
        Moreover, this proposal is fair across bank sizes and
    across all depositors. It does not pick winners and losers.
        Members, we have sustained two systemic emergencies in the
    last 5 years. This proactive program is system preparedness.
    The mere fact the FDIC would have this tool will promote long-
    term confidence for depositors, investors, and the markets.
        With a TAG backstop in place, we can then move to
    accomplish the second, more complex, and politically sensitive
    step to fully and fairly modernize deposit insurance.
        As you will see in my full statement, there is a list of
    important questions that remain unanswered beyond simply
    addressing assessment thresholds to include fixing the bank
    resolution process.
        One final comment.
        Banks pay deposit insurance premiums. It is not a bailout
    but in 2023, our community, mid-size, and regional banks were
    stiffed when the government could not say if it would follow
    through to protect those that had paid deposit insurance
    premiums. That is unacceptable.
        Ultimately, we ask Congress to reconsider what constitutes
    a systemically important bank. All banks, to include small,
    rural, urban community banks, and the mid-size banks that work
    with them, are systemically important to the communities they
    serve.
        Mr. Chairman, thank you for the thoughtful examination of
    this critical issue. We look forward to working with you to
    protect the system today and to comprehensively modernize
    deposit insurance for the future.

        [The prepared statement of Mr. Furlow follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Hill. Thank you very much.
        Mr. Norquist, you are recognized for 5 minutes.

    STATEMENT OF GROVER NORQUIST, FOUNDER AND PRESIDENT, AMERICANS
                             FOR TAX REFORM

        Mr. Norquist. Yes, Chairman Hill, Ranking Member Waters,
    members of the committee. Thank you for inviting me to testify
    today.
        Governments should not pick winners and losers. Government
    should not tax some businesses and subsidize others thereby
    creating winners and losers and government should not be doing
    what the real economy--the market--already does or can do
    better.
        Some observations.
        The Main Street Depositor Protection Act will take money
    from some banks to subsidize the top 1 percent of accounts; 99
    percent of deposit accounts are covered by the current $250,000
    limits. Raising it to $10 million is not worth the cost.
        Increasing premiums will be paid by the targeted banks to
    ensure a tiny minority of accounts. These account holders will
    be even more insulated from the consequences of bad decisions
    they may make that drag the whole system down. American banks
    already have the highest deposit insurance coverage in the
    world at $250,000.
        The government has failed to prevent bank failures through
    intervention and regulation. Silicon Valley Bank, First
    Republic, and Signature, those failures in 2023 were localized
    events that happened due to risky decisionmaking, and the
    regulators on the spot failed to follow through with Silicon
    Valley Bank deposits having numerous red flags. None of the
    watchers were fired.
        Now, these failures should not be used as a pretext to give
    handouts to 1 percent of accounts. In the past 50 years, 90
    banks with over a billion dollars in assets have failed despite
    the regulations and deposit insurance. As a result, many now
    expect to be bailed out, and they may make risky decisions
    based on those assumptions.
        The savings and loan crisis of the 1980s saw hundreds of
    thrifts fail due to the moral hazard created by raising deposit
    insurance in the 1980s. Depositors did not care about placing
    their money at these institutions knowing that they were
    covered--and neither did the banks. The S&L crisis was resolved
    through a multibillion-dollar taxpayer bailout.
        During the 2000 financial crisis, the FDIC's Deposit
    Insurance Fund ran out of money anyway and the depositors still
    had to bail out the banks when we raised the number to 250,000,
    promising the banks even more tax dollars if they lost
    everyone's money in the future.
        The Main Street Depositor Protection Act would slow growth
    and bifurcate the banking system. Every dollar spent on paying
    insurance premiums to the FDIC is a dollar not in the real
    economy. Increasing deposit insurance premiums reduces lending
    and increases borrowing costs, especially at smaller banks.
        We already have a uniform deposit insurance guarantee,
    largest in the world, carving out big and small banks, creating
    a bifurcated deposit insurance system and moral hazard by
    prompting deposit flight to mid-size insurance institutions
    that enjoy the $10,000 guarantee.
        The government should not reward bad decisions by bailing
    out poorly managed banks and exposing taxpayers to the bailout
    liabilities.
        Instead, banks should supplement FDIC with private deposit
    insurance. There is private insurance in many industries in the
    United States, and this should be more available in the banking
    industry.
        Instead of putting the taxpayer on the hook, which is both
    a misuse of other people's money and shields banks from the
    consequences of their own bad decisions, Congress could
    consider making it easier to opt into private insurance.
        Now credit unions currently can only adopt a supplement to
    the FDIC insurance if a majority of members vote to do so but
    can drop private insurance if any majority of any meeting
    agrees.
        Banks also should be allowed to meet their insurance or
    deposit minimums with private options in addition to FDIC.
        Private insurance can ease pressure on FDIC in crises and
    cover losses that would otherwise get bailed out by the
    taxpayers.
        The $10 million accounts are the exact sort of depositors
    that can find and afford private insurance. If these accounts
    would like coverage, they should pay for it.

        [The prepared statement of Mr. Norquist follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Hill. Gentleman yields back.
        Mr. Anderson, you are recognized for 5 minutes.

        STATEMENT OF JARRYD E. ANDERSON, PARTNER AND CO-CHAIR,
       FINANCIAL SERVICES GROUP, PAUL, WEISS, RIFKIND, WHARTON &
                              GARRISON LLP

        Mr. Anderson. Chairman Hill, Ranking Member Waters, and
    distinguished members of the committee, I am honored to be with
    you today and thank you for the leadership you have shown in
    drawing attention to this important issue.
        Deposit insurance has long been a pillar of our financial
    system and is crucial to the resilience of the U.S. economy.
        The events of recent years, including the collapse of
    several banks in the spring of 2023, have raised good questions
    about the need to modernize this framework.
        The legislative proposals being considered by the committee
    and in the Senate are promising efforts to enhance deposit
    insurance and related financial stability measures.
        I have three main points I would like to emphasize in my
    remarks today.
        First, during the great financial crisis of 2008, the
    Treasury Department, FDIC, and Federal Reserve Board jointly
    announced the creation of the Transaction Account Guarantee
    (TAG) program, which provided unlimited deposit insurance
    coverage for non-interest-bearing transaction accounts at
    participating banks.
        The Dodd-Frank Act created a statutory version of the TAG
    program but limited the FDIC's authority to create a similar,
    widely available guarantee program in the future.
        Under current law, creating the TAG-like program would not
    just require an affirmative two-thirds vote of the boards of
    the FDIC and the Federal Reserve. It would also require a joint
    resolution of Congress.
        Yet, as we saw in 2023, speed is of the essence during a
    financial panic and regulators must act quickly and decisively
    to resolve failing banks, discourage deposit runs, and limit
    contagion.
        Eliminating the congressional approval requirement would go
    a long way to restoring the potential for a TAG-like program,
    as was done during the coronavirus disease 2019 (COVID-19)
    pandemic, to prove useful during future stress events. The
    ranking member's bill, H.R. 4551, includes a thoughtful
    approach to fix this problem.
        Second, inflation adjustment of the deposit insurance limit
    is a commonsense reform that Congress should implement today.
        In 2005, Congress attempted to address the declining real
    value of deposit insurance by providing for inflation indexing
    of the deposit insurance limit with the passage of the Federal
    Deposit Insurance Reform Act.
        Enabling future inflation adjustments is a sensible reform
    that would mitigate the declining value of deposit insurance.
    The discussion draft posted by the chairman, the Growing
    Deposit Insurance for the Future Act, suggests such a
    legislative fix.
        Third, a major issue is whether to raise the deposit
    insurance limit for a narrow subset of transaction accounts for
    legal entities, not human beings.
        As a practical matter, this means small and medium-size
    businesses, 501(c)(3) nonprofits, and religious organizations.
        Every policy choice has tradeoffs, and raising the limit
    would reduce incentives for some depositors to participate in
    bank runs, but it would also impose greater costs on banks.
        The form and the level of increased coverage should be
    equitable and grounded in empirical analysis based on expanded
    efforts by the FDIC to collect relevant data along with
    significant input from the banking industry and other
    stakeholders.
        One discussion draft noticed for this hearing does a good
    job of mandating the study but a study for study's sake without
    a real commitment to empower the FDIC to gather research and
    make recommendations based on findings is an exercise of little
    value.
        The legislative proposals under consideration would make
    genuine advances. They would make our system safer.
        Congress should act now and not delay until the next
    emergency. The proposals before you have bipartisan support and
    contain complementary features.
        I am encouraged by this body's commitment to bolster U.S.
    financial stability and better arm our regulators with tools to
    defend against the foreseeable crises of tomorrow.
        Thank you for the opportunity to testify on this critical
    subject, and I welcome any questions from members of the
    committee.

        [The prepared statement of Mr. Anderson follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Hill. Thank you, Mr. Anderson.
        Appreciate all of our panel's testimony.
        We will now turn to member questions. I recognize myself
    for 5 minutes for questioning.
        In my view, it is essential that Congress take a data-
    driven approach--we have heard that from several of you today--
    to evaluate any potential reforms to the deposit insurance
    framework.
        One challenge in evaluating proposals in taking the
    approach of raising coverage limits for certain accounts is the
    potential cost to the banks and the Deposit Insurance Fund are
    uncertain, as well as the amount of deposits that would be
    covered and how depositors and banks might respond to those
    higher limits, especially since deposits shift to accounts with
    higher insurance limits.
        Another issue is the FDIC Call Report lumps together
    individuals, business partnerships, and corporations when banks
    report transaction and non-transaction accounts and then
    further lump all of those together for reporting of insured
    versus uninsured deposits. So, there is ambiguity between
    interest-bearing and non-interest-bearing account
    classification.
        Acting FDIC Chair Travis Hill referred to some of these
    data gaps in his recent nomination hearing and acknowledged as
    much back in July 2024 after the agency issued a request for
    information on deposits when he said we need more information
    to differentiate among types of uninsured deposits and the FDIC
    should consider collecting more granular and frequent deposit
    data.
        This makes complete sense given that banks today do not
    report comprehensive data on the composition of insured and
    uninsured deposits in their regulatory Call Reports and that
    granularity of the data is collected as limited.
        As somebody who has spent most of my career in this
    business, I could not agree more.
        Mrs. Castilla, is that an accurate description from your
    point of view of running your bank in Edmond?
        Mrs. Castilla. Chairman Hill, it is an accurate reflection.
    The data is very difficult not only for you to be able to get
    from the Call Report, but core systems within banks, especially
    small banks, do not differentiate some of this information.
        For instance, for uninsured deposits, we have to manually
    calculate that information by looking at all of our over
    250,000 accounts, looking to see if there are co-owners on
    those accounts, beneficiaries, and so forth.
        So it is difficult data to get, and it is true, like,
    uninsured deposits are not reported for small institutions.
        The data is also knowing how the shifts will occur in
    accounts is very difficult to assess. Once you have a higher
    limit in a non-interest-bearing account it is very easy to
    offset that with reduction in interest in loans or higher rates
    on larger interest-bearing accounts.
        Chairman Hill. I had certainly in my banking career many,
    many individuals who operated their very, very successful small
    business essentially out of a personal checking account. They
    were not incorporated. They were what we think of in legal
    terms as a sole proprietor.
        Would they be covered or not covered in some of these
    proposals?
        Mrs. Castilla. It is really difficult to assess, because
    many businesses are doing it. They open the account as a person
    and then do business as this account.
        Chairman Hill. Yes. Another, I think you have raised the
    issue of your own internal systems, your own contracted
    software providers as well as the Call Report. Very helpful.
        I do not know what is going on with the sound here, if
    somebody wants to deal with that.
        Mr. Ryan, what percentage of your bank's depositors have
    uninsured balances above the current limit and what is the
    typical balance these customers of your bank hold in a
    transaction account, even if you used it as a range?
        Mr. Ryan. Sure. Approximately 30 percent of our balances
    are uninsured, which is slightly better than I think average
    for banks our size.
        It is not--it is very common to have accounts with multiple
    millions of dollars sitting in them. Think about universities
    and hospital systems who have large payrolls and lots of need
    to pay suppliers, and things like that.
        Chairman Hill. Thank you.
        Mrs. Castilla, the same question to you. You run a $400
    million community bank. Congratulations on being one of 12
    women-owned banks in the country. That is terrific.
        Same question for you. Tell me how you look at uninsured
    deposits among your depositor base.
        Mrs. Castilla. So we minimize our uninsured deposits, and
    we mirror also if we have uninsured deposits of 10 percent of
    our assets. We make sure we have on-balance sheet liquidity to
    equal that amount.
        We maximize the use of reciprocal deposits primarily to be
    able to maximize coverage for our customers. Also, as a trusted
    adviser in our customers' financial journey, whether they are a
    consumer or a business, we help them identify.
        Now, with higher interest rates, a non-interest-bearing
    account really is not suitable for a business that is keeping
    large balances.
        So, we will set up sweep accounts so that the bulk of their
    balances are set in an interest-bearing account and they sweep
    over as needed when they write those checks or they have
    payroll processing into the non-interest-bearing account.
        We are also able to automatically sweep into reciprocal
    deposits to cover hundreds of millions of dollars.
        Chairman Hill. Thank you very much for everybody's
    testimony today.
        My time is expired and I now call on the ranking member of
    our full committee, Ms. Waters, for 5 minutes of questions.
        Ms. Waters. Thank you very much.
        I have a question for Mr. Anderson. However, before I do
    that, I would like to congratulate Mrs. Jill Castilla as
    president of a women's bank.
        It is good to see you here sitting among so many men who
    come here on every issue, and particularly on banking issues
    and so I hope that you are with us as we move for the
    possibility of increasing deposit insurance, and I hope women
    benefit from it.
        Having said that Mr. Anderson, in the aftermath of the
    failure of Silicon Valley Bank, Signature Bank, and First
    Republic Bank in 2023, the Biden Administration took emergency
    action to protect depositors and prevent contagion, which I am
    glad they did.
        Many businesses, however, got nervous about their payroll
    accounts being held by smaller banks and they moved their
    accounts to the mega banks thinking that they were too big to
    fail.
        A year later, a much smaller bank in Oklahoma, First
    National Bank of Lindsay, failed as well, but their failure was
    too small for regulators to use emergency tools to protect
    depositors.
        The failure resulted in small businesses, churches, and
    other customers with more than 250,000 to losing some of their
    money. According to the FDIC, it was the 37th time uninsured
    depositors lost money in a bank failure since 2007.
        To recap, small businesses that banked at SVB were
    protected while those that banked at this Oklahoma bank lost
    money. How is that fair?
        My bill, H.R. 4551, the Employee Paycheck and Small
    Business Protection Act, would address this problem with a
    data-driven approach to expand deposit insurance in a
    deliberate way considering the benefits and costs to ensure a
    higher threshold is set so community banks and credit unions
    can compete for small business deposits in their communities
    and those businesses and their workers are better protected.
        So I am thankful Chairman Hill posted my bill for this
    hearing, and I note that the chairman posted several Republican
    bills on this topic that overlap a lot with mine.
        Mr. Anderson, based on your work with various banks and
    even payroll companies during the 2023 regional bank crisis,
    how important is it for this committee to work together and not
    just study this issue but ensure action is taken to increase
    the deposit insurance threshold for business payment accounts?
        Mr. Anderson. Ranking Member Waters, thank you for your
    question.
        I think that your proposed bill, H.R. 4551, includes a lot
    of really valuable aspects, particularly the recommendation to
    reinstitute the TAG program without the need for congressional
    authorization.
        It is important to take some of the lessons learned from
    the 2023 banking stress and apply them, considering that there
    is a significant amount of bipartisan support for legislation
    today.
        Ms. Waters. Thank you very much.
        You mentioned in your testimony that you absolutely
    supported my legislation. I am wondering, as we look at the
    others here, would this also be good for women-owned banks or
    banks that target and support women?
        Mr. Anderson. I think that the legislation that you have
    proposed, and significantly the TAG provision and the request
    for the FDIC to conduct a study to determine what a potential
    increase for non-interest-bearing transaction account, what the
    coverage for those accounts would be, would be beneficial not
    just to Minority Depository Institutions (MDIs) but to
    community banks and mid-size banks, and the system overall,
    especially to the extent that it is equitable amongst the
    industry.
        Ms. Waters. Well, I thank you for being here today.
        I yield back the balance of my time.
        Chairman Hill. The gentlewoman yields back.
        The chair recognizes the gentleman from Michigan, the vice
    chair of our full committee.
        Mr. Huizenga, you are recognized for 5 minutes.
        Mr. Huizenga. Thank you, Chairman Hill.
        Last Congress this committee, including my Oversight and
    Investigations Subcommittee, spent a considerable amount of
    time on trying to find out the ``why'' of the failures of
    Silicon Valley Bank, Signature, and First Republic.
        While discussions over raising the deposit insurance did
    happen, as we received more information a different narrative
    did begin to emerge.
        Our findings concluded, which supported the findings of the
    FDIC's own report, that SVB's board of directors and their
    senior management ultimately made poor decisions and failed to
    mitigate risks.
        So then the question becomes, if we are indeed going to
    raise the deposit insurance cap--and I say this without trying
    to pre-judge this--what problem are we trying to solve? What
    are the other potential solutions and what are those
    consequences seen and unseen?
        Mr. Norquist, I am going to start with you quickly.
        You mentioned in your testimony that 94 percent of all
    deposits at Silicon Valley Bank were uninsured, which included
    venture capital and tech funds, not to mention their ag loans
    and ag clients, which really all you have to do is read
    wineries in that.
        As someone who owns a small business and who has, frankly,
    been denied loans for equipment and for real estate projects
    because of a concentration of risk in our own industries, I do
    not think this ever should have been allowed to happen but of
    course, because of FDIC's systemic risk exemption, the
    depositors felt no risk.
        So here is my question. What lessons should we draw from
    the failures of SBV, Signature, and First Republic with respect
    to uninsured deposits?
        Mr. Norquist. It was certainly a failure of the regulators
    who red flagged it, but nothing was done. The idea of bailing
    everybody out, even people that did not have insurance, tells
    the world that you do not have to get private insurance and
    people will take care of you. It allows people to take greater
    risks and be assured that somehow they will be bailed out.
        It needs to be clear to people that there is FDIC, which is
    now, again, the largest amount that is insured in the world is
    in the United States in terms of the dollar amount, 250,000
    now, never mind 10 million.
        The other question is, when we went to 100,000 in the
    1980s, that is when you ended up with the savings and loan.
    Increasing the FDIC did not reduce risks, it increased risks,
    because people thought that banks had----
        Mr. Huizenga. The moral hazard question.
        Mr. Norquist. Yes, the moral hazard. It says we will
    nationalize, we will share in any pain, and I will not have to
    pay if things go bad, but if things--if I have a risky bet that
    does well, then I will look really good, and if it fails, hey,
    somebody else is paying.
        Mr. Huizenga. All right. Thank you. I need to move on.
        Quickly, Mr. Ryan, you are on the board of the American
    Bankers Association serving as its vice chair. I feel your pain
    as a vice chair.
        [Laughter.]
        Mr. Huizenga. American Bankers Association's (ABA's)
    current chairman and fellow Michigander Kenneth Kelly led a
    task force earlier this year which produced a series of final
    recommendations on deposit insurance modernization. I will note
    these were approved unanimously by the ABA's board of
    directors.
        Mr. Chairman, with unanimous consent, I would like to put
    the report in.
        Chairman Hill. Without objection.

        [The information referred to can be found in the appendix
    on page 126.]

        Mr. Huizenga. Thank you.
        Mr. Ryan, could you please summarize quickly the ABA's
    views on deposit insurance reform.
        Mr. Ryan. Sure. I appreciate your vice chairmanship but
    there were a number of broad-based support. Deposit insurance
    reform and raising the limits were at the top of that list,
    including more information on that topic but there were a
    number of other actions, including the emergency measures that
    have been discussed today. Improved transparency around
    systemic risk designations and special assessments. The
    insurance. How we calibrate the fund and the stability to do
    that. Deposit insurance assessments, making them tax deductible
    like any other insurance that banks pay today.
        So there were a number of resolutions included in its
    recommendations, but I think those are the big highlights.
        Mr. Huizenga. Okay.
        In my remaining time I am going to turn to Mrs. Castilla.
        As a community banker--and, frankly, as a woman-owned bank
    yourself. You just heard the ranking member cite this being a
    security for women-owned banks. I saw a bit of a grin come
    across your face.
        Do you care to address that and do you agree that community
    banks will not have to pay for this increase in deposit
    insurance?
        Mrs. Castilla. Thank you for that question.
        This bill, if we went forward with non-interest-bearing
    accounts' insurance coverage skyrocketing for refold, I do not
    believe I would have any benefit from this type of legislation.
        I am currently covering those customers with market-
    available tools. I may be able to save a little money depending
    on what the cost ended up being compared to the 12.5 basis
    points I pay for reciprocal deposits.
        The cost coming to community banks, the proposal that I
    have seen has a 10-year transition period in which we would
    supposedly be excluded, but the language says that it is
    related to this particular account insurance coverage increase.
        Mr. Huizenga. Thank you.
        Our time has expired, Mr. Chairman.
        I seek unanimous consent to submit a series of letters.
    American Share Insurance, American Action Reform, Independent
    Bankers of Texas, Wall Street Journal Editorial Board, and
    others.
        Chairman Hill. Without objection, those letters will be
    included in the record.

        [The information referred to can be found in the appendix
    on pages 140-182.]

        Chairman Hill. I thank the gentlewoman from Oklahoma.
    Please continue your answer in writing to the vice chairman.
        It is now my pleasure to call on the gentleman from
    California, Mr. Sherman, who is our ranking member on our
    Capital Markets Subcommittee.
        You are recognized for 5 minutes.
        Mr. Sherman. Couple preliminary comments.
        It is discussed why did Silicon Valley Bank go down, and I
    believe one person said they made poor decisions.
        No. We have a poor system. They made decisions that were
    consistent with the profit motive of the officers and directors
    of Silicon Valley Bank.
        They lent long, they borrowed from their customers short,
    they realized they had a mismatch and that if interest rates
    went up they could lose a fortune. They bought insurance
    against that and then sold the insurance at a profit justifying
    bonuses to the very people who made the decision.
        If we do not require mark to market of securities that are
    held, we will have a bad system, and it will be in the interest
    of bank boards of directors and officers to make the same poor
    decisions.
        As to the matter before us today, I want to commend the
    ranking member for her bill to say let us study this. There
    have not been the academics, but especially the government
    studies that I would like to see.
        A couple years ago, I thought and said that maybe we should
    increase to 1 or 2 million dollars, and maybe we should, but if
    we are going to go up to 10 or even consider up to 10, I
    commend the ranking member for her bill and let us see what the
    impacts are.
        I will point out that there are two ways that investors are
    made whole. One is FDIC insurance. The other, some of us
    remember from 2008, is government bailout.
        Mr. Norquist, I want to thank you for your consistent if
    often mistaken dedication to your ideology.
        I think the only thing worse from your standpoint than FDIC
    insurance is government bailout, because then the general
    taxpayers are paying and the people benefiting never even paid
    into any insurance system.
        We are here talking about non-interest-bearing transactions
    accounts mostly at banks, but there is a rival on that; It is
    the stablecoin, also a non-interest-bearing transaction
    account.
        We had a vote in this committee where I proposed we have a
    clear law: no bailouts for stablecoin. Every Democrat voted
    yes. Every Republican voted no.
        Should we make it clear to stablecoin investors that they
    are not going to get a government bailout?
        Mr. Norquist. Well, I would certainly be in favor of
    bringing down the number of available bailouts and the reasons
    for giving them.
        I certainly think that there are a lot of things in my
    written testimony. I go through some of the private sector
    solutions that exist even in Massachusetts where I grew up
    before immigrating to the U.S.
        Real success in having--going back to 1934 and having
    private insurance. So, when you have the government so involved
    already with FDIC and going up to $100,000 did not make things
    better, it made things worse, I would suggest we go the other
    way and open alternatives.
        Mr. Sherman. I want to squeeze in one more item.
        One of the things about the proposed bill in the Senate is
    that every bank pays, but the biggest banks do not benefit. The
    question is: How will that affect us both on a sunny day and a
    deluge?
        On a sunny day, I do not think that businesses are going to
    take their money out of Bank of America if that is the closest
    bank. I do not think this is going to be a system that moves
    capital from the biggest banks to the medium or smaller banks.
        If there is a deluge, then small companies that have a
    million or two million in a big bank are going to come before
    the American people and say, ``I did something reasonable, I
    had my money in the big bank, I needed to run my business. On
    the same day, the business owner across the street had his
    money in a smaller bank and is covered by FDIC insurance that
    my bank has been paying for.''
        With that kind of argument, and having been here in 2008, I
    think the big bank accounts end up getting bailed out by the
    taxpayer.
        Is it reasonable--I will ask Mr. Ryan--to have a situation
    not from the standpoint of the bank but the standpoint of the
    small business, that if a small business has their money in a
    big bank they do not get FDIC insurance?
        Mr. Ryan. The deposit system, the confidence in that system
    is critical to the success of the American economy and the
    numbers of small banks continue to decline, and I think FDIC
    insurance modernization helps that decline from slowing for
    sure.
        Mr. Sherman. Thank you.
        Chairman Hill. I thank the gentleman from California.
        I now recognize the gentleman from Oklahoma, the chair of
    our Monetary Policy Task Force.
        Mr. Lucas, you are recognized for 5 minutes.
        Mr. Lucas. Thank you, Mr. Chairman and thank you to our
    witnesses for being here. Of course, I want to extend a
    particular welcome to my fellow Oklahoman and good friend, Mrs.
    Castilla.
        Today our banking system is healthy, well capitalized. Our
    strength is in the diversity of our Nation's banks in size,
    business model, and specialization but when it comes to deposit
    insurance and failures, there is a difference in how the
    government treats banks of different size.
        We saw this most recently when the FDIC provided a backstop
    for the systemic risk exception for the big banks that failed
    in the spring of 2023 but when a small bank in Oklahoma--which
    a number of my colleagues have alluded to--failed last year,
    that exception was not invoked. Depositors were not made whole.
        When people hear that their deposits may be safer in a
    larger institution because of that implicit guarantee by the
    government, our smaller banks are left at a competitive
    disadvantage.
        I want to focus my questions today on Secretary Bessent's
    support--Treasury Secretary, I should say--support for
    expanding deposit insurance to non-interest-bearing transaction
    accounts as a part of President Trump's community banking and
    Main Street agenda.
        Importantly, Acting FDIC Chair Travis Hill has testified
    that, based on the FDIC's estimates, they would not need to
    raise assessments for this expanded coverage.
        Though not a silver bullet, this reform is a much-needed
    improvement and could be part of a broad array of changes that
    must be made to strengthen our banking system.
        Mr. Ryan, the FDIC's report on deposit insurance reform
    after the large bank failures in March 2023 says that
    increasing deposit insurance coverage to business payment
    accounts is the most promising option to improve financial
    stability.
        What are the benefits to financial stability and increased
    competition with expanded coverage for these types of accounts?
        Mr. Ryan. America needs banks of all sizes, and I think
    having a diverse and healthy banking system requires a lot of
    us. I think that is what is unique about the American banking
    system.
        So having an increased deposit insurance limit, I think,
    reinforces the stability and the strength of this very diverse
    system we have today.
        Mr. Lucas. Continuing with you, Mr. Ryan. Your testimony
    highlights the rural, small, and mid-size banks in play in
    access to capital for Main Street businesses.
        How would an expansion of insurance coverage for accounts
    that businesses use for their payroll and operating expenses
    affect local economies? What is the real net effect?
        Mr. Ryan. Small and mid-size banks like Old National are
    closest to its customers and we are involved every single day.
    I wake up every single day and think about Evansville, Indiana.
    I think there are not any big banks in Evansville, Indiana.
        So I think it is important to have this big, diverse group
    of banks serving local communities. Without banks in local
    communities, they are just not as strong.
        Mr. Lucas. Mr. Ryan, are you concerned about an increase in
    moral hazard with a targeted reform approach? Picking winners
    and losers, I guess, is what people would say back home?
        Mr. Ryan. Thank you for that question.
        I think that non-interest-bearing accounts avoid this moral
    hazard question. It is not a moral hazard to protect small
    businesses.
        Mr. Lucas. Mr. Ryan, I have been on this committee for a
    little while, and I have been in this world for a little longer
    than that even. There are some lessons that seem to be hard for
    us to learn occasionally.
        I think you would agree the most relevant lesson from the
    savings and loan debacle was when you take short-term deposits
    and make long-term obligations you are exposing yourself,
    correct, sir?
        Mr. Ryan. Correct.
        Mr. Lucas. This is a fundamental flaw that we see used in
    other financial decisions and institutions to this day, true?
        Mr. Ryan. True.
        I might add, Representative, deposit insurance reform is no
    substitution for poor management. Poor management is on those
    board of directors and that management team. This is no
    substitution but deposit insurance reform in a contagion, in a
    crisis mode, can certainly slow down a crisis and give the FDIC
    and other regulators more time to correct what other systemic
    problems exist.
        Mr. Lucas. I have been here long enough to know that when
    the wheels come off, when we slam into the wall, we will do
    amazing things that usually are incredibly expensive and
    sometimes destructive in a hurried response.
        Preparation is better than catastrophe management, correct,
    sir?
        Mr. Ryan. Correct. That is about an ounce of prevention
    versus trying to manage a crisis after the fact.
        Mr. Lucas. I hope this is the first of several hearings on
    this subject matter.
        With that, I yield back, Mr. Chairman.
        Chairman Hill. The gentleman yields back.
        The gentleman from New York, Mr. Meeks, the ranking member
    on our House Foreign Affairs Committee, you are recognized for
    5 minutes.
        Mr. Meeks. Thank you, Mr. Chairman.
        I want to just jump in and first thank Mrs. Castilla also.
        I want to thank you for your service to our country. I want
    to thank you for sharing your story and your testimony; I thank
    you for that, because it reflects your exemplary leadership
    within your institution and community.
        It also embodies the qualities of community banks, and it
    is something that they should represent in how they represent.
        So thank you for that.
        In your testimony you mentioned that reciprocal deposit
    networks, like IntraFi, allow community banks to provide full
    insurance coverage for large depositors without requiring
    Congress to raise the FDIC insurance limits.
        You also note that many community banks--and I think this
    includes yours--absorb the costs of these networks so that
    customers can receive expanded coverage seamlessly, so that
    businesses, community businesses, they can be there and do what
    they need to do.
        So community banks, you already pay FDIC assessments to
    insure deposits up to $250,000, correct? Then you must pay
    additional fees to private reciprocal networks to provide full
    coverage for larger depositors, generally businesses in
    communities.
        For smaller banks operating on thin margins, those dual
    costs either squeeze your lending capacity; is that correct?
    They squeeze your lending capacity, or will they pass them on
    to customers? One or the other has to happen. Is that not
    correct?
        Mrs. Castilla. Sir, thank you for your question.
        So we pay interest on these deposits, so the customer
    receives income from an interest-bearing account and then we
    absorb the costs associated with that, it is higher interest
    costs, but we are able to maintain a margin over 4 percent.
        I am in a climate, in a community, where there are large
    banks, mid-size banks, and community banks, and I can compete
    against them and win.
        The competition that we have, the way that we win is
    through trust. Just like you were outlining as to the efforts
    that we do, and the other community banks do, we are able to
    have a competitive advantage because of trust.
        So we are able to maintain a margin, pass along income to
    customers with those large balances, and be able to deploy
    those into assets that serve our community.
        Mr. Meeks. So always I looked at it, this seems to be like
    a two-tier system, and whether that is fair on community banks
    or not. Because I am a big advocate for community banks to be
    able to do more in the community. This is both for urban and
    rural communities. So, this double paying does not seem to be
    fair to me on its face but how would you answer that?
        Mrs. Castilla. Sir, there are lots of things in business
    that are not fair, but I will say that we are able to pay our
    customers' interest versus being in a non-interest-bearing
    account with insurance, so they are receiving that benefit.
    Through the work that we do with them, we are able to have
    stable deposits that we can deploy.
        Our deposits are up 26 percent since the failure of Silicon
    Valley Bank. I contribute excess liquidity of over $30 million
    daily to the rest of the system because we have--our deposits
    outpaced our capital growth.
        So I do not feel disadvantaged, sir.
        Mr. Meeks. Well, thank you. This is why I think this is a
    very important hearing, because I think we could get something
    bipartisan done here, working together with the chairman and
    the ranking member.
        Let me jump to Mr. Anderson really quick, because, again,
    on the community banks, they often depend on the Federal Home
    Loan Banks for affordable liquidity.
        So how can policymakers reinforce the partnership between
    the FDIC and the Federal Home Loan Banks so that both systems
    work together to safeguard stability.
        Mr. Anderson. Thank you for your question, Congressman, and
    it is good to see you.
        I think that any material reforms to the FDIC deposit
    insurance framework, as well as the resolution and receivership
    process, should be done and taken with a perspective of other
    emergency lending and liquidity tools in addition to the
    Federal Home Loan Banks as well as the discount window, which
    Senator Warner has proposed a bill to make reform for and to
    ensure appropriate discount readiness.
        Mr. Meeks. Let me just try to get one more question in
    really quick.
        Share your thoughts on how critical Community Development
    Financial Institution (CDFI) funds and investments are in MDIs
    for supporting growth in rural and underserved communities.
        Chairman Hill. You should answer that question in writing,
    but it is a good question. I thank the gentleman from New York.
        I now yield to my friend from Texas.
        Mr. Sessions, you are recognized for 5 minutes.
        Mr. Sessions. Mr. Chairman, thank you very much.
        My thanks to the panel also. I think all five of you
    represent marketplace answers and ideas, and I appreciate it.
        I am more along the line of the prior two speakers who have
    spoken, I think that Mr. Ryan and certainly Mr. Furlow have
    spoken too.
        I have great respect and do agree with Mr. Norquist on
    government bailouts and where that happens but I happen to
    believe that we have some bit of a problem with the structure
    and its effect that we should look at. Perhaps this goes more
    to Mr. Furlow's conversation and certainly Mr. Ryan's
    discussion about: What are we really after? Certainly, Mrs.
    Castilla openly said we need banks of all sizes but there is a
    dominant effect, I believe, against smaller and community banks
    and I think the deck is stacked against them.
        We brought up SVB today and the impact of that and who the
    winners were, who the losers were. I began dealing with Mr.
    Furlow at the time of that about what might be concrete
    answers. It is hard in this place to get so many people on one
    side to agree with the other, but I believe that we have yet to
    talk about the role of regulators and their responsibility in
    this also. I think we have failed to talk about a number of
    things at banks, community banks, smaller banks, that involve
    criminals and assaults against their accounts, financial
    institutions, notwithstanding banks.
        I think that Bill Huizenga has done a good look, good view,
    proper view of his oversight of the regulators and that balance
    but I will tell you that I think we have to aim at a philosophy
    about how we are going to level a playing field to make sure
    that community and smaller banks not just compete fairly--and I
    know Mrs. Castilla said, oh, they can compete, not a problem--
    but I think that when it really comes down to it, in particular
    when there is a problem, they lose.
        When there is something in the marketplace that happens,
    whether it be SVB or other things, I think by and large we lose
    community banks. I think people move their money.
        Now, much of it could be because I live in central Texas,
    and that is what I hear. I hear people from Waco, to
    Nacogdoches, to Lufkin, and they have varying needs and varying
    desires, but I think we have to get to what the structure is
    that we are trying to get at and get a better understanding.
        I think that is what this event is about today. I think the
    hearing is to hear how somebody in Oklahoma really did a great
    job with the debacle from SVB and then look at the facts about
    some others.
        So I am looking for an answer. I am looking for a
    healthier--in which we have a healthy financial system for
    everyone, big banks, everyone in the country but I think that
    we have to go more to a structure--and I have used that word
    now three times--a structure that we understand what we are
    trying to get out of the end result.
        Regulators, the money, whether it is $250,000, or whether,
    when there is a problem, how we are going to resolve it and who
    pays.
        Mr. Furlow, help me out with my thinking, because I think
    that I have been coached well, but it is my philosophy to
    understand this from a philosophical perspective. Help me out
    here.
        Mr. Furlow. Congressman, thank you for the question.
        I think just the range of issues that we have talked about
    related to deposit insurance today points out that this is a
    complex issue. It is a complex matter. It is not going to be
    easy to fix and that is why the Texas Bankers Association,
    along with six of our colleague associations from middle
    America, are proposing this two-step approach to deposit
    insurance reform.
        The first is to make sure that we quickly have an emergency
    TAG capability in place in case there is another systemic
    emergency.
        It is easy to forget that we have had two systemic crises
    in 5 years. What will be the next thing that happens? We just
    do not know.
        So we need to have an emergency TAG capability in place
    while we quickly--and I want to emphasize quickly--move to the
    modernization side and have these open discussions about so
    many of the questions that remain, whether it be on what the
    threshold should be, how we handle bank resolution. Again, that
    is why we are promoting the two-step process.
        Mr. Sessions. Thank you.
        One more second please, Mr. Chairman.
        I believe we should learn from the past and regulators have
    a responsibility to come and aim at systemic problems or issues
    as opposed to really many ancillary things that they get
    involved in for 3 weeks at a time.
        Thank you, Mr. Chairman. I yield back.
        Chairman Hill. Thank you, Mr. Sessions, very much.
        I call on the great gentleman from Georgia.
        Mr. Scott, you are recognized for 5 minutes.
        Mr. Scott. Thank you, Mr. Chairman.
        Mrs. Castilla, welcome. I want to ask you about the moral
    hazard and the impact of raising the deposit insurance cap from
    250,000 to 10 million and my understanding is that none of the
    proposals for expanding coverage would relax bank supervision
    and regulation to guard against excessive risk-taking.
        Here are my concerns, which involve blurring the lines
    between insured deposits and private capital, signaling that
    all liabilities are implicitly backed by us in the Federal
    Government.
        In your recent op-ed, you say that this type of behavior
    can distort competition and weaken the very discipline that
    deposit insurance is meant to preserve.
        So my first question to you is, can you share which
    specific categories of bank risk, liquidity concentration,
    credit would be the most sensitive to a higher guarantee?
        Mrs. Castilla. Thank you, sir, for that question. I love
    this question because the moral hazard can be quite complex.
        Right now the current market tools that allow for insurance
    coverage for individuals beyond the $250,000 limit, it has
    restrictions, regulatory restrictions from allowing a troubled
    institution to increase their exposure to the fund.
        So 4 or 5 rated banks, those that their troubled condition
    cannot participate further, are frozen in their activities with
    the Federal Home Loan Bank and reciprocal deposits.
        If you increase deposit insurance, there is not that
    restriction within the Federal--within the FDIC. They would
    have up to that limit, and they could bring other customers on,
    they could be in the marketplace offering higher rates or
    better toasters and take customers from well-managed community
    banks because they need the liquidity and you could have a
    failing institution increase its exposure to the fund.
        Mr. Scott. Let me also ask you, are there any targeted
    coverage categories where moral hazard concerns are lower?
        Mrs. Castilla. It is a great question, and it would require
    more research and analysis on that. I do not feel like I have
    the expertise to potentially cover that.
        Mr. Scott. You know, I do not like the idea of inviting
    regulatory complacency or allowing management, uninsured
    creditors, or shareholders to offload risks onto the public
    safety net.
        Would enhanced supervisory oversight of interest rate risk
    or concentration risk reduce the behavior incentives created by
    higher coverage?
        Mrs. Castilla. Sir, frankly, the current supervisory
    framework should catch this mismatch of interest rate that we
    saw at Silicon Valley Bank and other banks.
        I cannot get away with this behavior. Our interest rate
    risk is analyzed every 18 months. Even if they see a Call
    Report that falls askew in some way, I am getting a call, sir.
        Mr. Scott. Now, Mr. Anderson, welcome.
        In the 1980s the U.S. experienced a wave of bank failures
    that resulted in over 700 bank closures and costing the economy
    300 billion and 25 dollars.
        So my question to you is, do you see these proposals having
    a similar impact and could we be increasing risk to financial
    stability?
        Mr. Anderson. I think that the proposals before the
    committee today, taken collectively, actually are a net
    positive in reducing financial stability risk to the system.
        There are a lot of valuable components, particularly
    instituting a TAG-like program and inflation adjustment for the
    deposit insurance limit, that are reasonable, sensible
    solutions to help enhance financial stability.
        Mr. Scott. So, you are not worried about anything in this
    area, are you?
        Mr. Anderson. Not anything that keeps me up at night. I
    actually am very much encouraged by the bipartisanship within
    this committee and some of the reforms that are on the table.
        Chairman Hill. Thank you very much.
        Mr. Scott. Thank you.
        Chairman Hill. Thank you, Mr. Scott, very much.
        The chair recognizes the gentlewoman from Missouri, the
    chair of our Capital Markets Subcommittee.
        Mrs. Wagner, you are recognized for 5 minutes.
        Mrs. Wagner. Thank you, Mr. Chairman.
        My home State of Missouri has a huge variety of banks,
    ranging from community and regional banks all the way up to
    Globally Systemically Important Banks, or G-SIBs. As of last
    year, in fact, Missouri has the fourth-highest number of State-
    chartered banks in the United States.
        Missouri represents what makes our banking system great.
    These varied institutions can address the different needs of
    our community, from a young married couple buying their very
    first home to the entrepreneur who needs a loan to grow a
    startup.
        This variety is unique and one of our economy's biggest
    strengths. Any changes to our deposit insurance framework
    should ensure that the variety and the diversity of our banking
    system is preserved so that all customers can access banking
    that suits their needs and any negative impacts are minimized.
        Mr. Norquist, it is good to see you again, sir.
        What potential pitfalls or moral hazards and market
    distortions can be created if deposit insurance coverage limits
    are raised and conditioned on a bank's size?
        Mr. Norquist. Well, you might see people moving their
    hundred million dollars into ten smaller banks where they are
    each covered. So, you would have some movement of capital
    perhaps chasing after government insurance support.
        I think there is a challenge when you take money from one
    part of an industry and hand it to another part of the same
    industry. That is picking winners and losers or creating
    winners and losers right there.
        We should take a look at what happened in the 1980s when we
    did, for all the reasons that we are hearing here, we
    extended--we, the government, increased the coverage to 100,000
    from 40,000 and we ended up with massive misallocation of
    resources and a lot of bankruptcies beyond what the insurance
    would cover, largely created by the government deciding that
    everything was going--almost everything was going to be covered
    and people made decisions thinking that if they lost the money,
    that everything would be okay, so they were much more risky.
        Mrs. Wagner. Thank you, Mr. Norquist.
        Mr. Furlow, in your testimony you mentioned the Transaction
    Account Guarantee, or the TAG program, a temporary program
    established by the FDIC in 2008 to provide unlimited deposit
    insurance on non-interest-bearing transaction accounts at all
    banks.
        Several groups, including the Missouri Bankers Association,
    have recommended providing regulators with the authority to
    establish a TAG program as a first step toward a more
    comprehensive restructuring of our deposit insurance system.
        Can you compare the effects on the banking sector and
    depositors' behavior of the following policies: the current
    systemic risk exception, the TAG program, and the permanent
    increases to deposit insurance limits.
        Mr. Furlow. Yes, ma'am. Thank you for the question.
        I think it really gets to the heart of why we are proposing
    a two-step approach. We are grateful for the Missouri bankers
    being a part of this coalition. Really what we are trying to
    get to the heart of is how do we bring fairness for all banks,
    to include our community and mid-size banks.
        I look in the community, for example in Quitaque, Texas.
    The First National Bank in Quitaque, Texas, is systemically
    important in that community, to ag producers in particular.
        Mrs. Wagner. Yep.
        Mr. Furlow. Yet during the last crisis that bank did not
    know if their depositors were going to be covered and so making
    sure that we have in place immediately the ability in case we
    have a systemic crisis between now and when we figure out all
    of these other factors that we are discussing today is terribly
    important.
        Mrs. Wagner. Thank you very much, Mr. Furlow.
        Mrs. Castilla, as I mentioned earlier, we have a wide
    variety of banks in Missouri, including many community banks
    like your own.
        How would proposals to change deposit insurance limits
    affect those different sized banks?
        Mrs. Castilla. I thank you for that question.
        The Show Me State is--I am going to use that moniker--that
    I think we need a ``show me'' on the data and do a really in-
    depth analysis to see how each of these sized institutions will
    be affected.
        I think the assumption right now is if there was a large
    increase in deposit insurance that you potentially could see a
    flowback of funds to large mid-size banks from small
    institutions and the largest institutions.
        Because during the SVB crisis, since then, small bank
    funding has remained consistent and so we work with the
    receivers and also kind of the losers together within that net-
    zero cost.
        Mrs. Wagner. Thank you. Thank you, Mrs. Castilla.
        My time has expired.
        Mr. Ryan, I have questions for you, but I will put them in
    writing.
        Thank you so much, Mr. Chairman. I will yield back.
        Chairman Hill. I thank the gentlewoman from Missouri.
        I will now recognize the gentleman from Massachusetts, Mr.
    Lynch. He is our ranking member of the Digital Assets,
    Financial Technology, and Artificial Intelligence Subcommittee.
        Thank you.
        Mr. Lynch. Thank you, Mr. Chairman.
        I want to thank all the witnesses for your testimony this
    morning.
        I just want to add to Mr. Sherman's remarks around the
    failure of Silicon Valley Bank. It also did not have a chief
    risk officer in place for the 8-month period before their
    collapse. That might have held.
        You know, since the mid-1980s, the number of commercial
    banks in this country has declined by about 70 percent, with
    consolidation mostly occurring in relation to the largest
    financial institutions in the country.
        This trend again accelerated in 2008, as we all know,
    during the 2008 financial crisis. Most recently, the collapse
    of the banks that we are talking about this morning--First
    Republic, Silicon Valley Bank, and Signature Bank--which were
    the second, third, and fourth largest bank failures in U.S.
    history, resulted in JPMorganChase actually growing by $173
    billion in deposits and $229 billion in loans following their
    acquisition of First Republic.
        In the wake of these failures, our committee, Democrats and
    Republicans, have continued to evaluate long-overdue reforms,
    not only to prevent the failures in the first place, but also
    to look at the resolution process. I know Mr. Furlow and others
    have mentioned that aspect of this.
        To this end, Chairman Hill and Ranking Member Waters were
    kind enough to attach my bill, called the Failing Bank
    Acquisition Fairness Act, which would ensure that smaller and
    mid-size and regional banks would have a shot when a bank fails
    instead of rushing to push those deposits and loan activity to
    another mega bank or G-SIB.
        I would just like to get, Mr. Anderson, if you could talk
    about the view of offering mid-size regional banks--and I am
    going to ask Mr. Ryan to comment afterwards as well. He has got
    a good perspective there from Evanston and also all over the
    Midwest.
        What would that mean if we actually allowed strong mid-size
    and regional banks to take over some of these failing banks
    instead of making JPMorganChase even larger?
        Mr. Anderson. Congressman, thank you very much for your
    question.
        I generally support the principle that Congress should
    preserve the policy already in our laws which limits the
    largest banks to 10 percent of total deposits in the U.S.
        Mr. Lynch. We have an emergency clause there for failing
    banks. So, it does not apply. That is what I am----
        Mr. Anderson. Right, in a crisis scenario.
        Mr. Lynch. Yes.
        Mr. Anderson. I think consistent with some of the
    recommendations from the ABA white paper, which has been
    submitted to the record, having the opportunity for community
    banks and mid-size regional banks to participate in bank
    failures is probably a pretty good idea.
        That is going to be limited by the complexity of the failed
    institution and the size of an institution and the assets that
    it holds.
        Mr. Lynch. Time is of the essence. I do agree with you.
        I just want to go to Mr. Ryan and let him have a couple of
    words on this.
        Mr. Ryan. I am sure the committee knows this, but mid-size
    and community banks regularly lend out 75 to 80 percent of its
    deposit base. The largest banks in our country only lend out 55
    percent of their deposit base. So having more small and
    community banks and mid-size banks creates more lending
    opportunities and more economic development in our communities.
        Mr. Lynch. Thank you.
        One other issue. Last week, Michelle Bowman, she is the
    vice chair for supervision at the Federal Reserve Bank, spoke
    at a banking conference in Madrid. Santander, I guess, ran that
    but she advocated that it is critically important that
    traditional banks are able to engage fully in the digital asset
    space and compete--these are traditional banks--and compete
    with non-bank financial institutions by integrating
    cryptocurrency.
        That would seem to blow up all of the risk control, all of
    the protections that we put around banks. I am just wondering--
    that seems to be a crazy idea, in my opinion, thinking about
    what we are talking about here: deposit insurance, to import
    the most volatile and risky of assets, speculative assets and I
    do not know, Mr. Ryan, you got some thoughts on that?
        Mr. Ryan. Well, I do think we need to tread cautiously when
    we are talking about financial technology (fintech) companies
    who operate a lot like banks, when we are talking about
    stablecoin entities and bitcoin companies and things like that.
    I think we need to tread lightly, particularly around any
    government-implied or explicit guarantees.
        Mr. Lynch. Okay. Thank you.
        Mr. Chairman, I appreciate the courtesy, and I yield back
    the balance of my time.
        Chairman Hill. The gentleman yields back.
        It is a pleasure to recognize the chair of our Financial
    Institutions Subcommittee, the gentleman from Kentucky.
        Mr. Barr, you are recognized for 5 minutes.
        Mr. Barr. Thank you, Mr. Chairman.
        Thanks to all of our witnesses for your insightful
    testimony. What we are talking about here today are policy
    alternatives and there are tradeoffs and so thanks for helping
    us get to this.
        I want to scrutinize two topics: one, the Hagerty-
    Alsobrooks legislation and the potential cost of that; and
    second, this E-TAG concept.
        Mr. Ryan, thanks for Old National's presence in Kentucky,
    in the Commonwealth, and the contributions to economic
    activity, especially in Henderson, and in Lexington as well.
        I do applaud your efforts to try to protect those mid-size
    institutions like your own, but I am concerned about the
    Hagerty-Alsobrooks cost.
        Let me ask Mrs. Castilla to amplify this idea that the
    effective increases in deposit insurance on premiums that
    institutions pay, and will these costs be borne by the
    institutions themselves or customers, as you said, in the form
    of lower interest paid on deposits, higher interest paid on
    loans, and other increases in fees?
        Mrs. Castilla. Thank you for the question.
        I look at this bill as being more of a buy-now-pay-later
    type of scenario where we have--we do not really know the cost.
        We are utilizing already-paid-in assessments to subsidize
    some of these costs, with an exception stated for community
    banks, but still using these assessments that we have always
    contributed to subsidize the cost of this legislation.
        Mr. Barr. Mr. Ryan, can I go back to you? I want to give
    you a shot here. Because Mrs. Castilla's testimony is that the
    lesson of 2023 is not the 250,000 limit is too low. Confidence
    does not come from insuring every dollar.
        Why could Old National or banks of your size not use, as
    Mrs. Castilla argues, collateralized deposits, Federal Home
    Loan Bank letters of credit, reciprocal deposits as amplified
    by our legislation? Why is it that Hagerty is the only answer
    here?
        Mr. Ryan. We certainly use all those tools. However, I
    would suggest to you that during times of crisis, they are very
    complex, they are expensive to administer, and our businesses,
    quite frankly, would prefer to stick to FDIC insurance.
        Mr. Barr. I understand that.
        Let me just ask one final question about the Hagerty-
    Alsobrooks proposal.
        The proposal would have the FDIC spread its recognition of
    insured deposits over a 10-year period in order to get the
    reserve ratio.
        Mr. Norquist, does increasing insurance coverage 40 times
    what it is today, but not really paying for it, except for over
    a decade, does that make sense to you?
        Mr. Norquist. Not particularly.
        Mr. Barr. Let me move on to TAG. I want to--as an
    alternative to this Hagerty-Alsobrooks idea, I want to enter
    into the record, Mr. Chairman, a letter from the Kentucky
    Bankers Association and some of the other State bank
    associations advocating for an E-TAG.
        Chairman Hill. Without objection.

        [The information referred to can be found in the appendix
    on page 183.]

        Mr. Barr. Why, Mr. Furlow, why is the systemic risk
    exemption inferior to E-TAG? I mean, was it not the failure of
    SVB and the deposit outflows that we saw as a result of that
    the result of regulatory delay and indecision over that fateful
    weekend as opposed to the absence of an E-TAG?
        Mr. Furlow. That absolutely was part of it. I mean, y'all
    remember that weekend. Everyone was scrambling, both on the
    industry and regulator side, to understand what was going on
    and what was going to happen before Monday morning.
        The reason that we are proposing this E-TAG proposal is to
    ensure that there is something in place that can quickly be
    implemented, especially in the social media age when contagion
    can happen.
        Mr. Barr. Well, I guess my question is: Is it not the
    problem the regulators' failure to execute the systemic risk
    exception, was not that the issue, as opposed to the absence of
    E-TAG?
        Mr. Furlow. That is certainly a part of it.
        Mr. Barr. Well, just in general, Mr. Furlow, can you tell
    us why you believe that the E-TAG program would be preferable
    compared to across-board blanket increases in deposit insurance
    limits and whether it would be a cost-saver in the long run
    compared to FDIC resolutions of failed banks?
        Mr. Furlow. Well, sometimes I think we forget what deposit
    insurance is there for. It is first and foremost to prevent
    bank runs. I think we focus a lot on what happens after the
    bank runs, who pays, who is going to pay what?
        The first goal should be to stop bank runs from beginning
    at the first place. With our proposal, if we have a program
    that is set to be utilized at a moment's notice when we see
    contagion starting, then we can quickly say to depositors,
    regardless of the type and size of bank that they are at, you
    are good.
        Mr. Barr. Finally, Mr. Ryan, why is E-TAG not superior to
    the costly increase in deposit insurance reform?
        Mr. Ryan. Deposit insurance reforms are about prevention.
    E-TAG is about cleaning up a crisis afterwards.
        Mr. Barr. Thank you. I yield back.
        Chairman Hill. The gentleman yields back.
        I now recognize the ranking member for the Subcommittee on
    Financial Institutions, Dr. Foster of Illinois.
        You are recognized for 5 minutes.
        Mr. Foster. Thank you, Mr. Chair.
        Thank you to our witnesses for very thoughtful testimony.
        You know, it is important that we not only look at the past
    but also look as best we can into the future. What we are going
    to be dealing with in the future, it is not going to be
    customers or businesses, it is going to be their AI agents.
        When you are talking about bank runs, you are going to be
    talking about bank runs that do not occur at the speed of
    social media, but at the speed of agentic AI. I am confident we
    are not ready for that.
        Mrs. Castilla you described during the 2023 bank stress
    getting your customers on the phone to reassure them. That was
    only possible because we had hours or days at most to actually
    do that but if this had been happening at the speed of agentic
    AI, which I am afraid they will be programmed to--their prime
    directive will be to keep your money safe, and, second, maybe
    do some trust-based long-term relationship stuff, but I do not
    think that will be emphasized for most people.
        So you are going to have a situation where the agents that
    are making the decisions in real time are not going to have the
    customer loyalty that our whole banking system depends on.
        So I was just wondering, has this--actually, Mr. Furlow,
    you have talked a lot about this and about your first step is
    at least make sure we are safe against this sort of--what is
    the current thinking?
        Does someone have a system that pencils out reasonably that
    would actually protect us from an AI-driven bank run where
    everyone's agent read some rumor on Reddit that this bank may
    be in trouble, and they are not sure, they do not have time to
    check it out, but their first responsibility is to get your
    money the heck out of any bank that might be in trouble?
        Mr. Furlow. Well, first, I would say that I respectfully
    disagree with my friend Mr. Ryan that E-TAG is responsive. It
    is preparedness. It is putting in place, whether it is an AI-
    generated type of crisis, whether it is geopolitical in nature,
    whether it is social in nature, whatever that crisis is, we are
    prepared to act quickly in order to protect banks of every
    size, which is not the status of where we are today.
        Today our community banks, our mid-size, our regional banks
    are very vulnerable to shocks and 2023 proved it. It happened
    extremely fast and in the age of AI, it is going to happen even
    faster.
        Once that is recognized, when contagion is seen, what we
    need is a quarterback. We need someone who has the ball to be
    able to say--we need to invoke this authority to protect banks
    of every size, to stop the runs before they start. That will
    help to protect the Deposit Insurance Fund (DIF).
        Mr. Foster. We are also, I think, going to need real-time
    data collection all the way down to even the smallest banks.
        Mrs. Castilla, you also described how you had to manually
    calculate what fraction of your deposits were uninsured.
        That seems like it should not happen even for a small bank.
    You should have a dashboard that gives you in real time all of
    the relevant numbers, and, frankly, report those numbers in
    real time up to the regulators so they have the information
    they know.
        The technology exists to do this. I am sure all the big
    banks have the equivalent of that, and the regulators I am sure
    have real-time visibility into this.
        The cost of this software is going to get massively cheaper
    with AI-generated software, frankly. I think one of the things
    we may want to think about is trying to make it possible for
    even the smallest banks to have the highest quality software so
    that the banks themselves, without having to go and break the
    bank of paying for it, have a way to get industrial strength
    software that will lower the cost of compliance and make the
    regulators' job a lot easier because they do not have to worry
    about collecting data.
        Has anyone--I will just go down the line here--what is--who
    are the thought leaders on that? Who is assembling such a
    system and thinking about how it can work?
        Mr. Anderson, you look like you want to say something.
        Mr. Anderson. That is a really good question, Congressman.
    I do not have a great answer for you on the spot, but happy to
    get back to you about who the thought leaders are on designing
    that system.
        Mrs. Castilla. Sir, I do not have a comment on the thought
    leader side. I will get back to you on that.
        I do want to say that we have, just our bank, more than 75
    percent of off-balance sheet collateral sources that we could
    draw upon if there was a way to integrate that real time.
        I think a deficiency we have right now in that type of
    situation that you describe is that we only can access the
    Federal Reserve in a discount window during business hours and
    it is through the wire system versus using FedNow or something
    comparable where we had real-time, 24/7 access to those
    collateral sources.
        Mr. Foster. Right. Now you are going to have to preposition
    those collateral in a way that the Fed has confidence that they
    can give it an appropriate haircut and give you the emergency
    in the next 20 minutes to stop this bank run.
        Mrs. Castilla. Sir, we test our contingency funding
    processes at least on a monthly basis. So they are ready to go.
        Mr. Foster. Well, it has got to be real time,
    unfortunately.
        Mrs. Castilla. Yes, sir.
        Mr. Foster. I do not think it will end up being
    exorbitantly expensive. We just have to find a way to not have
    those costs land on the small banks in a way that they just
    cannot afford.
        If there are any thoughts on how to best, frankly,
    subsidize better software for small banks, I think is the
    ultimate--going to have to be the ultimate goal here, or else
    you are always going to have a flight to the large banks when
    this happens.
        Is this a job for--I do not know if the Federal Reserve
    could convene a workshop on this to actually write down a
    system that actually can survive against an AI agentic?
        Mrs. Castilla. There are several community banking
    workshops in which we share best practices where this could be
    pertinent and we do--although I said we calculate this
    manually--we have a system internally where daily we can see
    what our uninsured deposits are.
        So community banks are scrappy. It just may not be a fancy
    software system. It may be an Excel, and we are importing that
    data from a query, but we are monitoring it on a daily basis.
        Mr. Foster. Bigger regulators in this kind of run are going
    to have to know in real time how widespread the problem is.
        Anyway, my time is up. I welcome any thoughts you had on
    the forward on this growing problem.
        Mrs. Castilla. Yes, sir.
        Mr. Foster. Yield back.
        Chairman Hill. I thank the gentleman from Illinois.
        We now recognize Mr. Loudermilk, the gentleman from
    Georgia.
        You are recognized for 5 minutes.
        Mr. Loudermilk. All right. Thank you, Mr. Chairman. It is
    good to be back. I am reorienting myself to how all this works
    again. We had a little break there.
        Mrs. Castilla, in your testimony you wrote that the 2023
    events were fundamentally a crisis of confidence, not a
    shortfall of coverage. I tend to agree with you on that.
        In your view, how does data-driven reform address this
    shortfall of confidence of the current deposit insurance
    framework in a way that simply raising the deposit insurance
    coverage threshold cannot?
        Mrs. Castilla. Well, certainly, when we go back and look at
    those bank failures, the supervisory oversight was inconsistent
    with what community banks face on a daily basis with our
    regulators.
        To be able to say, if you have 95 percent or 94 percent
    uninsured deposits you better have a lot of on-balance sheet
    liquidity to handle liquidity's prices.
        The data is going to be difficult to get. I think Call
    Report data is more limited when it comes to deposits even for
    large institutions that report more frequently and more
    detailed information.
        I do think that some of this is imperative going forward.
        Mr. Loudermilk. So how do you think the banks themselves
    can help ensure confidence for their depositors?
        Mrs. Castilla. I mean, trust is what banking--that is what
    we do. That is what community banks do. I do not want the
    government to take the place of the trust that I get to build
    in customers. That is what makes community banking so special.
        Mr. Loudermilk. All right. Thank you.
        Mr. Norquist, good to see you again.
        Even though the additional FDIC coverage would be funded by
    industry premiums into the DIF, do you have any concerns about
    costs being passed down to consumers or the American taxpayer?
        Mr. Norquist. Well, when you have an effective tax on the
    business that says you have to give us this for the insurance
    because we will tell you what you get for the money, it is not
    a voluntary decision by a bank to pay the additional money.
        Mr. Loudermilk. Right.
        Mr. Norquist. As I understand it, some banks will be paying
    in to subsidize other banks. So it looks a lot more like a tax
    even than a mandated fee or behavior.
        Those things tend to be problematic. You are subsidizing
    some people at other people's expense and when you take money
    out of a bank for insurance or any other purpose, it is not
    available for other things.
        So at the end of the day, where else does the bank get
    money other than its customers? It is like taxes. The property
    taxes on your grocery store are not paid by the potatoes; they
    are paid by people who buy potatoes.
        Mr. Loudermilk. Right. Okay.
        Mrs. Castilla, if I come back, the follow up on that, as a
    community banker, is that something that would have to be
    passed along to your customers and increase fees, et cetera?
        Mrs. Castilla. We would just have to figure out how to
    navigate around that. You know, community banks have tons of
    technology pressures.
        Mr. Loudermilk. Right.
        Mrs. Castilla. We have to provide the same thing the big
    banks do. So something would have to give that we would have to
    be scrappy and figure it out.
        Ultimately the customer probably would either have
    deficient service instead of capacity from a technology
    standpoint, accessibility of services, or potentially cost in
    what we were able to be able to pay them for.
        Mr. Loudermilk. Right, and generally customers end up
    paying all the fees.
        Now, let me take this a step further because in the past
    few years our friends on the other side of the aisle here have
    waged war on bank fees. They want to get rid of bank fees or at
    least significantly curtail them.
        So if that was to happen--and I will open this up to
    anybody on the panel--to where now bank fees are not allowed or
    you are not allowed to raise bank fees, what do you do then,
    especially for small banks?
        Mrs. Castilla. It is an impossible question and keeps
    getting more difficult to answer. So if you have--or anybody
    else in the room has that--I am all ears, because it is
    becoming more cost burdensome.
        Even though we have an interest margin of over 4 percent,
    it used to be our non-interest expense was covered by our non-
    interest income.
        Now, there is no way that non-interest income covers non-
    interest expense and that banks' profitability then continues
    to tighten.
        Mr. Loudermilk. Would anybody else like to take a shot at
    that?
        Mr. Furlow. Yes, sir.
        One of the challenges, especially for our community banks,
    is just the stack of expenses that they are constantly facing.
        An issue I would like to raise, because it fits into all of
    the costs, is fraud. Fraud is a huge problem, especially for
    community banks and guess what happens? Oftentimes, those banks
    are making the customer whole.
        So it is easy to attack the fees, but it is our community
    banks who, if there is a card skimmer that is involved, or
    someone falls victim to fraud in any way, the community banks
    are making those customers whole.
        When you add the technology, the expense of additional
    insurance that Mrs. Castilla had referenced, they are doing
    yeoman's work in terms of protecting their customers.
        They need, as a business, especially many community banks
    are small businesses, they need that ability to be able to
    cover some of those costs.
        Mr. Loudermilk. So we are potentially creating a catch-22
    situation, right.
        All right. With that, Mr. Chairman, my time is expired. I
    yield back.
        Chairman Hill. The gentleman yields back.
        I now recognize the gentlewoman from Ohio, the ranking
    member of our National Security Subcommittee.
        Mrs. Beatty, you are recognized for 5 minutes.
        Mrs. Beatty. Thank you, Mr. Chairman, and thank you,
    Ranking Member Waters.
        To all of our witnesses here, thank you for your testimony
    and your commitment to community banks. That is good to hear.
        I have been a big proponent and advocate for making sure,
    not only for the institutions, but for our consumers, whether
    it is in rural America, urban America, or even suburban
    America. We have found a lot of people find comfort in going to
    their small community bank.
        So with that, I will start with you, Mr. Anderson.
        As you probably are aware, this committee recently passed
    the Keeping Deposits Local Act, led by myself and my colleague
    on the other side of the aisle, Congressman Emmer.
        It went all the way through the markup to expand the use of
    reciprocal deposits so that community financial institutions
    can broaden their insurance coverage and compete for larger
    accounts.
        Can you share with us or discuss how pairing this
    legislation with broader deposit insurance, such as what our
    ranking member, Maxine Waters, proposed, how would that help
    small and community banks?
        Mr. Anderson. Thank you for your question, Congresswoman.
        I agree that the expanded use of reciprocal deposits and
    custodial deposits is beneficial to community banks,
    particularly the ones that can take advantage of it.
        It is quite complementary to the reforms that Ranking
    Member Waters has proposed, and they do not preclude one
    another just given the targets of those bills.
        I agree that it is important for regulators to weigh in on
    how these components fit together and I think part of what the
    FDIC should be studying is how reciprocal deposit arrangements
    and potential increases to the Deposit Insurance Fund impact
    one another.
        Mrs. Beatty. Okay. Thank you.
        We have heard a lot about community banks, but I am very
    fortunate in my district, we have one of the newer MDI banks.
        So, Mr. Anderson--and I will go down the line in asking
    others--when we think about Federal banking regulators and they
    have an obligation under Dodd-Frank to preserve and promote
    Minority Depository Institutions, or MDI, are there steps that
    Federal banking regulators could take that would build on the
    bipartisan progress made during President Trump's first term,
    which provided $12 billion in capital investments and grants to
    MDIs and as well as CDFIs?
        Mr. Anderson. So, Congresswoman, I very much appreciate
    your question in large part because MDIs and CDFIs are near and
    dear to my heart.
        When I first began my career in banking regulation at the
    Federal Reserve as a teenager, the first project I ever worked
    on was the Partnership for Progress, which is the Federal
    Reserve's initiative designed to promote and preserve minority-
    owned banks.
        So I think that MDIs and CDFIs play a critical role in our
    financial ecosystem, and it is important that this Congress and
    the administration continue to take steps to protect and
    preserve them.
        Mrs. Beatty. Others?
        Yes?
        Mrs. Castilla. Ma'am, as a woman-owned bank, I am a State-
    chartered institution, and the Office of the Comptroller of the
    Currency (OCC) is the only regulatory agency that recognizes
    women-owned banks as a minority depository institution.
        So although we are part of the Partnership for Progress
    underneath the Federal Reserve, we are not considered an MDI
    with those State--those FDIC and the Federal Reserve. I believe
    that is something that can be changed to help or be more
    inclusive, inclusivity, when it comes to women-owned banks,
    and, hopefully, that we have more than 15 down the road.
        Mrs. Beatty. Thank you.
        Mr. Ryan. Old National has been working for the last 2
    years to create Indiana's first minority depository
    institution, called Generations Community Bank. It has been a
    2-year long journey to create this organization.
        I do think having higher FDIC insurance limits would be
    helpful to this institution given it is a brand-new institution
    and depositors might be less likely or be more concerned about
    putting anything above the FDIC insurance limit.
        So I think it is very complementary to what we are trying
    to do with creating a new MDI.
        Mrs. Beatty. Well, thank you.
        If Adelphi Bank--I hope I am not speaking for them, but
    they have been very successful in meeting all their benchmarks
    and getting through it. I am sure they would be willing to talk
    to you since you are not in Ohio.
        Mr. Ryan. Yes, thank you very much. We have talked to them.
        Mrs. Beatty. Okay. Great. I will let Jordan Miller and
    Kevin Boyce know. Thank you.
        Anyone else?
        Mr. Furlow. Ma'am, continued regulatory rightsizing. If you
    look at my minority depository institutions and CDFIs, they are
    overwhelmingly community-oriented, community banks and if we
    can make sure that the regulation fits their business model, I
    think that would go a long way to helping make sure deposit
    insurance fits that.
        Mrs. Beatty. Thank you. My time is up.
        Chairman Hill. The gentlewoman yields back.
        Now a pleasure to recognize the gentleman from Ohio, the
    chair of our National Security Subcommittee.
        Mr. Davidson, you are recognized for 5 minutes.
        Mr. Davidson. Thank you, Chairman.
        It would be great if we lived in a world where the success
    of a bank is based on how effectively they manage their assets
    and the level of service they deliver for customers, not where
    success is based on the size and scope of taxpayer-funded
    stipends.
        Unfortunately, this is not the present case, and today we
    will examine whether or not taxpayers should wind up on the
    hook for another $10 million of deposit insurance.
        The Taxpayers Protection Alliance estimated that the cost
    of the Hagerty-Alsobrooks legislation for banks would result in
    a $42 billion special assessment and billions more in added
    premiums each year.
        We also have a statement from a coalition of 11
    conservative groups opposing an increase in FDIC insurance.
        I would ask unanimous consent to submit it to the record.
        Chairman Hill. Without objection.

        [The information referred to can be found in the appendix
    on page 191.]

        Mr. Davidson. However, some have claimed that increasing
    deposit insurance would not result in higher costs for banks.
    So I want to drill down on it and make sure we get it correct.
        It seems to be based on a provision in the bill that deals
    with how the FDIC calculates the Deposit Insurance Fund's
    reserve ratio. It directs the agency to not count the full
    amount of newly insured deposits and instead spread costs out
    over 10 years, which appears to be an accounting slight of hand
    to prevent the reserve ratio from going below its statutory
    minimum.
        Mrs. Castilla, what do you think about this buy-now-pay-
    later approach to deposit insurance?
        Mrs. Castilla. I think I find it really difficult to
    understand how this is a disciplined way for there to be fiscal
    policy going forward. It exposes the fund to so much fragility,
    and it puts--with the fund, just as Mr. Furlow suggested, the
    deposit insurance is the--keeps us from having runs.
        If there is a perception out there that we do not have the
    funds to back up our insurance, and this is messing up the math
    and making it very fuzzy, so it is not transparent that the
    fund is actually adequate, I find that exceptionally
    concerning. Trying to establish trust with the customer, I have
    to have the trust in the fund.
        Mr. Davidson. Well, we certainly do not like fuzzy math. So
    when we consider changes to the deposit insurance framework, it
    is important that we take away the right lessons from the
    spring of 2023, instead of spinning revisionist history.
        The failures of Silicon Valley Bank and First Republic Bank
    were fueled by concentrated uninsured deposits, mismanaged
    risks, swift deposit outflows due to technology changes, and,
    frankly, supervisory failures.
        I would like to point out that in my assessment Signature
    and Silvergate were victims of Biden's unlawful war on crypto,
    and I do not think they were actually insolvent except for
    that.
        Mr. Norquist, would raising deposit insurance limits have
    prevented the failures of these banks?
        Mr. Norquist. No.
        Mr. Davidson. Thank you.
        Mr. Anderson and Mr. Furlow, both of your written
    testimonies mentioned how we need to reassess the deposit
    insurance and bank resolution frameworks together.
        Why is it important that Congress does both if we are going
    to take a comprehensive approach to deposit insurance reform?
        Mr. Furlow. Certainty. The banking industry abhors having
    uncertainty. It makes doing business so much more difficult.
    When you think especially about the bank resolution process,
    for example, the failure that occurred in Oklahoma, a lot of
    folks had questions about: How did that process take place?
    There are a lot of unanswered questions there.
        So whether it is deposit insurance so that depositors know
    that their deposits are safe in an emergency, or the bank
    resolution process, that there is some certainty to the process
    and it is transparent.
        Mr. Davidson. Thank you for that.
        Speaking of comprehensive reform, another issue that should
    be addressed in this jurisdiction is interest on excess
    reserves.
        Mr. Chairman, I would like to submit this document from FGA
    into the record.
        As we discuss padding the balance sheets of banks with FDI
    insurance in 2024 alone, the Fed paid out----
        Chairman Hill. Without objection.

        [The information referred to was not submitted prior to
    printing.]

        Mr. Davidson. Thank you, Chairman.
        The Fed paid over $186 billion in payments directly to
    banks. This is money from our Treasury to banks--because they
    are holding their balances in the Federal Reserve, money that
    they do not even have to deploy in their own balance sheets.
    They do not manage their own balance sheets. They do not even
    have to do underwriting. They just leave it on deposit with the
    Fed and take a big break.
        Instead of sending taxpayer dollars to profitable banks, we
    should focus on accountability for our financial system and
    paying down the $38 trillion deficit. FGA estimates this could
    save over $1 trillion in a 10-year window.
        Last, as we talk about the private sector, I would like to
    submit for the record that there is a private alternative.
        So banks that want to offer insurance to their creditworthy
    depositors could do their own underwriting, and they could
    offer a private sector insurance, sort of American Share
    Insurance, based in Ohio.
        I would ask unanimous consent to----
        Chairman Hill. Without objection, it will be included in
    the record.

        [The information referred to can be found in the appendix
    on page 140.]

        Mr. Davidson. Thank you, Chairman. I yield my time.
        Chairman Hill. The gentleman yields back.
        It is a pleasure to call on the gentleman from California,
    Mr. Vargas, who is the ranking member on our Monetary Policy
    Task Force.
        You are recognized for 5 minutes.
        Mr. Vargas. Thank you very much, Mr. Chairman and Ranking
    Member.
        I think this has been an excellent hearing, and I really
    appreciate all the comments. In fact, interestingly, when you
    sit on the second row, most of the things you were going to ask
    have already been asked by the gentle people on the first row,
    or the rear row, however we want to call that--the elevated
    row. So I do have a few questions, however.
        Mr. Norquist, I believe your first statement here was
    something like government should not pick winners and losers. I
    believe that was one of your first statements.
        Then I read here also in your written testimony, ``I
    testify today against putting taxpayers and consumers on the
    hook for bank failures. This includes expanding Federal deposit
    insurance coverage beyond the $250,000 limit. An expanded
    guarantee would magnify moral hazard, slow lending and economic
    growth, and expose taxpayers to unlimited backstop liability.
    Members should understand that raising deposit insurance
    coverage will only make bank bailouts more likely.''
        I think all those are correct.
        Notwithstanding Ralph Waldo Emerson's statement that
    ``foolish consistency is a hobgoblin of little minds,'' you
    have been pretty consistent.
        So I was curious that when the Federal Government took a
    9.9 percent interest in Intel, many voices were heard, and I do
    not remember hearing yours.
        Mr. Norquist. It was not a good idea, and it is not a good
    idea for the Federal Government, State government, or local
    government to own businesses in whole or in part.
        Mr. Vargas. So would that not lead toward socialism when
    the government is owning businesses like this? Is that not
    picking winners and losers and is that not the government
    owning businesses itself?
        Mr. Norquist. It certainly gives the government an interest
    in the success of that company, which means it will lead--I
    would think it would tend to lead to government picking winners
    and losers by buying from that because----
        Mr. Vargas. Is socialism not the government owning the
    means and modes of production?
        Mr. Norquist. Yes.
        Mr. Vargas. Yes. Is this not the case with Intel, then? The
    government took about a 10-percent stake in it.
        Mr. Norquist. Yes, okay, it is 10-percent socialism there.
        Mr. Vargas. Yes. I agree with you.
        Mr. Norquist. Yes. It is not a good idea.
        Mr. Vargas. It is not a good idea, no.
        Mr. Norquist. Write a memo.
        Mr. Vargas. You gave the example, too, of the store that
    sells potatoes and you said the property tax on that store is
    not paid by the store; it is really paid by the customers.
        Mr. Norquist. Uh-huh.
        Mr. Vargas. Is that not what you said also?
        Mr. Norquist. Correct.
        Mr. Vargas. So who pays the tariffs?
        Mr. Norquist. Tariffs--well, American tariffs----
        Mr. Vargas. Yes.
        Mr. Norquist [continuing]. are paid by American consumers.
        Mr. Vargas. That is right.
        Mr. Norquist. French tariffs are paid by French----
        Mr. Vargas. Consumers.
        Mr. Norquist [continuing]. consumers.
        Mr. Vargas. Okay. Well, I appreciate that. You have been
    consistent, and that I do appreciate.
        Now, I appreciate the diversity of ideas here, because I do
    think that ultimately we can come to some agreement, generally.
    Because I do think the reason we have FDIC insurance in the
    first place is so there is not a run on the bank, not really to
    ultimately what happens afterwards; it is so it does not
    happen.
        I remember the testimony of the three CEOs that we have
    been talking about their banks today, and one of them basically
    said, ``Look, I did not do anything wrong, my bank did not do
    anything wrong. The idiot over there on the corner, he is the
    one that screwed up, and I just got sideswiped. In fact, a
    bunch of people that had banked with me for 20 years came to
    me, and I came to them and said, 'Please, do not do this, do
    not do this to me,' and they said, 'We cannot. We have got to
    get out,' `We have to go somewhere where it is secure.' So that
    is what they did once the panic set in. Once the panic sets in,
    it is difficult to stop.''
        That is what his testimony was, and I kind of agreed with
    that. I thought, yes, it probably is the case, once the panic
    sets in, you want your money out.
        So I think we need to figure out this and modernize it
    without the government being too much on the hook. I appreciate
    that and that is why I think studying this thing and getting
    everyone together, as the bill of the ranking member does, I
    think that is a very good idea. I think that is what we should
    do to make sure that we do not screw it up and make sure we do
    it better and at the same time not expose the taxpayers to a
    lot of liability here. I think that is important.
        So, with all that being said, there is one thing that I
    think we have not mentioned here that is too bad, but I think
    it is reality, and that is economies of scale. You know, these
    big banks have an advantage right now, and that is that
    technology is very expensive and, yes, modern regulation is
    very expensive. It is hard to absorb those costs for a small
    bank or even a medium-size bank. The bigger banks can do that
    and that is why they have economies of scale. That is an
    advantage.
        The second advantage--not advantage, but one of the things
    I think that is also a truism: The big banks are getting
    better. I mean, they do not loan as well as, I think, the local
    banks do, and I think that is true, but they are getting
    better, their products are getting better. I think that is one
    of the reasons why they are growing also.
        Anyway, all that being said, I appreciate the conversation
    here today very much and hope we can get to some agreement.
        You had a question? Yes, sir. Go ahead.
        Mr. Ryan. I would just add, while I generally agree that
    they have more ability to spend money on technology, banks like
    Mrs. Castilla's and our bank, Old National Bank, are better at
    relationships and being closer to our clients.
        Mr. Vargas. Yes, I think so too. I think you also, as you
    said, you loan more, a bigger percentage. I think that is a
    positive thing. That is why I am in favor of small and medium-
    size banks, but I also recognize large banks have an advantage.
        Mrs. Castilla. That proximity to the customer also makes us
    much more creative and relevant in the technology they provide.
        Mr. Vargas. That is right.
        With that, I yield back, Mr. Chair.
        Chairman Hill. The gentleman yields back.
        I am proud to recognize the gentleman from Texas, Mr.
    Williams. He is the chair of the Small Business Committee here
    in the House. I yield 5 minutes.
        Mr. Williams of Texas. Thank you, Mr. Chairman.
        Also I would like to say hello to all my friends on the
    panel today. Thank you for being here.
        My home State of Texas is home to many community and
    regional banks, and these financial institutions are the
    backbones of their communities and help support Main Street
    entrepreneurs within those communities.
        During recent periods of financial instability, even the
    soundest financial institutions faced sudden deposit overflows
    driven by fear rather than fundamentals. That kind of
    disruption threatens the stability of deposits and flow of
    credit from smaller financial institutions to entrepreneurs
    that their businesses rely on to meet payroll, invest, and
    grow.
        My first question, Mr. Furlow: In the event of a bank
    failure, how could the proposed two-step approach protect the
    deposits of community and regional banks?
        Mr. Furlow. Well, first, Mr. Chairman, thank you for the
    question. Great to see you.
        The first and most important thing is that we can act with
    speed. With the E-TAG proposal that we are proposing, quickly
    E-TAG could be put into place, and so you would not have doubts
    about the security of deposits in a community bank or a mid-
    size or a regional bank. So that is number one.
        We have to remember that most of our small businesses in
    this country bank with community banks. It is back to the
    relationship discussion that we heard from Mr. Ryan and Mrs.
    Castilla. So that is number one, is that we have to--and we
    have to do that with speed.
        The second piece is to make sure we have fairness. Fairness
    is terribly important because, as we saw in 2023, some of the
    larger institutions did see inflows of deposits, away from our
    community banks, and why? Because the government could not say
    that community banks were going to get the coverage, even
    though they paid into the deposit insurance system.
        Mr. Williams of Texas. Deposit insurance plays a crucial
    role in maintaining public confidence, especially for smaller
    and regional banks. However, as we evaluate potential changes,
    it is important that we carefully assess the full impact.
        So we know that more than 99 percent of deposits are
    already insured under the current limit. Yet we lack in-depth
    data on how many businesses or personal accounts would be
    affected by raising that limit.
        So, Mrs. Castilla, can you speak to the risk of expanding
    deposit insurance limits without first having accurate data on
    how many accounts would be impacted and what it would mean for
    the Deposit Insurance Fund?
        Mrs. Castilla. Thank you, sir, for that question.
        Acting FDIC Chair talked about this in his testimony, how
    difficult it is even to estimate not only the current accounts
    that might be eligible for this expanded coverage but how
    accounts would shift into these new--into the non-interest-
    bearing accounts, especially with--I mean, I would work around
    this to game it as much as possible, just like my other banks
    would. If you do so legally, you are going to do so in a way to
    take full advantage of these opportunities for your customers.
        So I think you would see a huge movement into these insured
    accounts that could really expose the DIF to much more
    potential exposure than what we estimate it to be. We already
    would be on the hook for those costs, whether it was a bank
    failure that occurs at the time and there is a skinnier DIF
    that is available for them or that we are having to ramp up
    costs over that 10-year period.
        Mr. Williams of Texas. Okay.
        My final question: Any discussion about deposit insurance
    must also discuss the failed bank resolution framework, given
    that any increase in deposit insurance will increase costs--the
    Deposit Insurance Fund--in the event of a bank failure. So
    those costs will of course be paid for by banks through higher
    insurance assessments and, in the worst-case scenario, could
    require a backstop from taxpayers.
        So, Mr. Furlow, can you tell us about the complex
    interaction between deposit insurance and bank resolution and
    tell us whether you think that in order to address reforms to
    one we must address reforms to the other.
        Mr. Furlow. Yes, sir. This is all tied together. At the end
    of the day, our banks are paying premiums into the Deposit
    Insurance Fund. I had mentioned earlier that we have to have
    certainty to this process, whether that is the bank resolution
    process or whether it--what will happen in a systemic
    emergency.
        So we have to address this in a comprehensive way. If we
    just do it as a one-off here and there on each piece, then we
    are putting various segments, and the entire system potentially
    at risk with these gaps.
        So that is why it makes sense, under our two-step proposal,
    to make sure that we have a systemic backstop in place, so we
    have the time to address all these very complex issues.
        Mr. Williams of Texas. Okay. Thank you.
        Mr. Chairman, I ask unanimous consent to enter into the
    record a statement from Stephen Moore, founder of Club for
    Growth and Unleash Prosperity, raising concerns with who stands
    to benefit from expanded deposit insurance and who will bear
    the costs.
        Chairman Hill. That will be included in the record, without
    objection.

        [The information referred to can be found in the appendix
    on page 195.]

        Mr. Williams of Texas. With that, I yield my time back.
        Chairman Hill. The gentleman yields back.
        We will now hear from the gentlewoman from Texas, Ms.
    Garcia.
        You are recognized for 5 minutes.
        Ms. Garcia. Thank you, Mr. Chairman.
        Thank you to all the witnesses for joining us today.
        I think we all remember well--and some of us have talked
    about it already--the Silicon Valley Bank, Signature Bank, and
    First Republic Bank, when they all failed. As everyone has
    already referenced, emergency measures were taken, including
    the provision of deposit insurance for all depositors, to
    prevent contagion to other banks. Ensuring the depositors were
    high priority.
        Since the crisis, there has been a bipartisan understanding
    that Federal deposit insurance does indeed need to be
    modernized. So let us get something done. I think we can do it.
        I want to start my questions today with my fellow Texan on
    the panel, Mr. Chris Furlow.
        In your remarks, you talked about a two-step proposal, the
    first step being to authorize an emergency transaction account
    guarantee, or E-TAG.
        Mr. Furlow. Yes, ma'am.
        Ms. Garcia. I found that interesting, that it is called
    ``E-TAG,'' because that is the tax system to go through that
    Texans deal with.
        The E-TAG program is also something that is talked about in
    Representative Waters'--the ranking member's reform bill, which
    includes a provision which would allow regulators to
    temporarily establish a program for 6 to 9 months. Any further
    extension would require congressional approval.
        In your testimony, you recommend 120 days, which is 4
    months, before needing congressional approval. Do you think
    that 120 days is enough time to preserve confidence and to
    mitigate any systematic instability?
        Mr. Furlow. Well, I think if you look at the 2023 failure,
    the reason things were extended--or, the crisis was extended
    was because there was so much uncertainty. If we have E-TAG in
    place, we can stave off the runs that continue things to be
    destabilized.
        So 120 days would do a couple of things.
        One, it will bring calm to the system. If folks know that
    their deposits are safe regardless of the size of institution
    that they choose to bank, that will bring calm to the system.
        Number two, 120 days will give us a full post-event
    quarter's worth of data. As you all know, that has always been
    a huge problem with the discussion of deposit insurance reform,
    is the lack of data. We saw that in the Senate discussions
    earlier this year, and we continue to talk about it here today.
    That would give us a full quarter's worth of data in that
    situation to determine what we are actually seeing. That would
    inform you here in the Congress, it would inform regulators,
    and it would inform the administration about the next steps
    that they can take.
        So that is why we say 120 days and then if you and the
    Congress determine that we need to extend that, you can
    absolutely do that.
        Ms. Garcia. But--so do you just think that the 6 to 9
    months is just too long? I am trying to see what the real
    difference is here.
        Mr. Furlow. I just think, at the end of the day, if we are
    able to keep a--any type of event from being extended, 120 days
    should be sufficient, and especially if we are getting data,
    which we do not get today.
        So I understand why we have talked about maybe extending
    that longer, but we think when we are addressing moral hazard
    by keeping it to 120 days.
        Ms. Garcia. Okay. Let me just move on then.
        So the second part of your two-step--and maybe you should
    just call it a Texas two-step--is to modernize the Federal
    deposit insurance structure to reflect the 21st-century banking
    landscape.
        Could you expand on that? What exactly do you mean?
        Mr. Furlow. Well, we have talked about a lot of those
    things today--the bank resolution process and how that will
    work.
        When I look at our current landscape in deposit insurance,
    it is far beyond the simple allocation of what assessments
    might have to be, what the thresholds might have to be. So this
    is an all-consuming type of issue that we need to explore
    comprehensively and not do this in a piecemeal fashion.
        Ms. Garcia. Right.
        Mr. Anderson, I wanted to ask you about community banks. In
    your opinion, would expanding deposit insurance promote
    depositor confidence in our community banks?
        Mr. Anderson. Yes, I believe so. I think an increase in
    deposit insurance limits, particularly one that is equitable
    and applies a level playing field across the industry, will
    increase confidence in depositors not just in community banks
    but across the banking system.
        Ms. Garcia. So what do you think about the Texas two-step
    that he is talking about?
        Mr. Anderson. I agree with the first step. My suggestion
    would be to rely on the time window that is in Ranking Member
    Waters' bill.
        The events of 2023, if you look at the calendar, First
    Republic failed on May 1, and Silicon Valley Bank failed on
    March 10, but there were still stresses in the system beyond
    the failure of First Republic.
        So, if you do exercise a TAG program to ensure--to cover
    all transactional accounts, it probably makes sense to have a
    6-month period, with a potential extension to 9 months.
        Ms. Garcia. Okay. Thank you.
        I see my time has run out. I yield back.
        Chairman Hill. The gentlewoman yields back.
        The gentleman from Tennessee, Mr. Rose, is recognized for 5
    minutes.
        Mr. Rose. Thank you, Chairman Hill and Ranking Member
    Waters, for holding this important hearing.
        Thank you to all of our witnesses for taking time to be
    with us today.
        Mr. Anderson, you have reviewed the call reports and the
    deposit data. Tell me, did deposits migrate from smaller banks
    to larger banks in the spring of 2023?
        Mr. Anderson. Yes. I think the regulators--the postmortem
    reports reflected that.
        Mr. Rose. And did deposits also migrate to government money
    market funds and elsewhere?
        Mr. Anderson. Yes, I believe so.
        Mr. Rose. Thank you.
        Mr. Ryan, some have alleged that expanding deposit
    insurance coverage could increase moral hazard. What do you
    make of that argument and as a bank executive, would higher
    coverage for non-interest-bearing transaction accounts compel
    you to take more risks?
        Mr. Ryan. Clients keeping more money in their non-interest-
    bearing business accounts are not going to increase risk for
    Old National Bank.
        I believe protecting depositors does not create a moral
    hazard in this situation. People do not put excess funds in
    non-interest-bearing accounts. They do that very thoughtfully,
    and they only do that for operating purposes.
        Mr. Rose. Thank you.
        Mr. Ryan, I am focused on the needs of Tennessee banks and
    credit unions in my home district. Some have suggested
    reciprocal deposits reform as a way to address flaws in the
    current system.
        Would adjusting reciprocal deposits be enough to meet the
    needs of Tennessee banks?
        Mr. Ryan. I do not believe so. I think we are just
    creating, potentially, another problem. Concentrating risk
    within those reciprocal networks or other private insurance
    programs creates a whole new set of unknown risks and
    unnecessarily complicates business owners' understanding of
    what insurance looks like.
        Mr. Rose. Thank you.
        Mr. Anderson, given how rapidly rumors can spread on social
    media and trigger depositor panic, how well is the current
    $250,000 FDIC insurance limit equipped to contain the risk of a
    social-media-driven bank run? Would raising the coverage limit
    provide a stronger stabilizing effect on depositor behavior in
    such fast-moving scenarios?
        Mr. Anderson. Great question, Congressman.
        I think if you look to the original intent of deposit
    insurance, it did not take into account the social media and
    the speed of communication today. So I do not necessarily
    believe that the deposit insurance threshold, whether it is
    $250,000 or another limit, will contain contagion through
    communication, just how quickly information spreads and because
    of the technological capabilities we have today and the speed
    of money movement.
        Mr. Rose. Thank you.
        Mr. Anderson, in what ways could temporary emergency
    programs, like a modified version of the Transaction Account
    Guarantee Program in 2008, be designed to minimize market
    disruptions while providing short-term depositor confidence?
        Mr. Anderson. So I think an application of the TAG Program
    helps to fill a gap within the existing financial regulatory
    response to a crisis framework.
        The systemic risk exception allows regulators to identify
    individual institutions to fully ensure deposits, but the TAG
    Program gets applied to the entire system. So, if you had the
    opportunity to deploy the TAG program on March 12 after Silicon
    Valley Bank and Signature failed, then, more likely than not,
    you do not have the failure of First Republic on May 1.
        Mr. Rose. Thank you. I appreciate the insight.
        Mr. Ryan, in your written testimony, you stated, ``One Mid-
    Size Bank Coalition of America (MBCA) bank helped a client
    spread a $10 million payroll deposit across more than 30 banks
    through a reciprocal network just to simulate coverage--fees,
    legal complexity, and a stack of monthly statements.''
        Could you explain how situations like this illustrate the
    practical burdens and complexity that businesses face as a
    result of the current FDIC deposit insurance limits?
        Mr. Ryan. Well, the reciprocal networks, in the best of
    times, can act as a substitute but what I will tell you is,
    most of our businesses do not like that substitute. Less than 1
    percent of our accounts choose to use that as a substitute and
    it creates complexity and higher cost for both the owner of the
    business as well as the bank. I just do not think that is the
    best tool as a substitution for increased FDIC insurance
    limits.
        Mr. Rose. Thank you. I appreciate that.
        I see my time is running out. Mr. Chairman, I yield back.
        Mr. Steil [presiding]. The gentleman yields back.
        The gentleman from Illinois, Mr. Casten, is now recognized
    for 5 minutes.
        Mr. Casten. Thank you, Mr. Chair.
        Thanks to all our panelists here.
        Mr. Norquist, I am used to seeing you at ``Will on the
    Hill.'' I have not seen your thespian side yet, but I always
    appreciate it.
        So I think some of my colleagues have mentioned that FDIC
    Vice Chair Hill recently said that the agency does not have the
    data on where the uninsured deposits are beyond the very narrow
    $250,000 threshold.
        Mr. Furlow, you are nodding. I know you have raised some
    similar points in your testimony.
        It seems to me that there are two largely separate data
    questions. One is, what do we know about the deposits in banks
    that offer FDIC insurance but are beyond the insured threshold?
    Then separately, what do we know about deposits that are in
    banks that do not offer FDIC--or other financial institutions
    that do not offer that?
        Do I understand your testimony; you are focused primarily
    on that first question?
        Mr. Furlow. That is right. We just do not have the data. I
    mean, as you mentioned, that was in Vice Chair Hill's
    testimony.
        Mr. Casten. Uh-huh.
        Mr. Furlow. Chairman Scott on the Senate Banking side also
    had requested that data.
        So this gap that we have in data is why we need a little
    more time to ensure that we can----
        Mr. Casten. So I guess just to that point, I am a nerd; I
    would like to see the data. I have some concerns that the FDIC
    has laid off about 20 percent of its staff in the last year. Do
    they have the horsepower to get that data, or do we need to be
    thinking about making sure that the FDIC has the resources to
    ask that question?
        Mr. Furlow. Well, I can only say this: You would have to
    ask FDIC if they have the tools for that, but we still need the
    data.
        Mr. Casten. Okay.
        Well, if anyone from the FDIC is watching and still
    employed, give me a ring.
        Shifting to the deposits that are outside of the deposit
    insurance system, Mr. Anderson, there was a Treasury Department
    report in April that said that stablecoin adoption could result
    in $6.6 trillion, with a ``T,'' dollars of deposit outflows.
        Do you have concerns about the rise of stablecoins
    displacing traditional bank deposits?
        Mr. Anderson. Very good question, Congressman. If I could
    just touch on, quickly, the question about the FDIC, as well as
    your stablecoin point.
        I think, once a study is conducted, the FDIC should solicit
    input from the banking industry and other stakeholders--you can
    do this through a Request for Information (RFI) or through a
    survey--to get information and data around these types of
    accounts--how many are insured, how many are uninsured, and the
    size and the number of transaction accounts.
        Mr. Casten. Uh-huh.
        Mr. Anderson. With respect to your other question about
    stablecoins, yes, I do think that inviting additional risk into
    the system does expose future losses to the DIF----
        Mr. Casten. I guess I am asking two questions. One question
    is, is it pulling deposits out of the traditional banking
    system? Then the separate question is, where are those deposits
    going?
        You know, we had introduced amendments to say that
    stablecoin should only be able to invest those in insured
    accounts. Those amendments were rejected by my colleagues. So
    where is the money that the stablecoin issuers are taking in--
    where is it ending up?
        Mr. Anderson. Yes. That is a really good question that I do
    not have the best answer for you today, but I can get back to
    your office.
        Mr. Casten. So, if we were going to have a run on those
    uninsured deposits, do we know, like, where does that contagion
    sit in the banking system, or we just do not have an answer to
    that yet?
        Mr. Anderson. I do not have the answer to that today, and I
    am not sure if others do as well.
        Mr. Casten. Have any of you seen good data on that
    question?
        Mr. Ryan. I think the prevailing thoughts are, those are
    going to be collateralized, and they are going to sit with the
    Nation's largest banks, not at mid-size or community-bank
    levels.
        Mr. Casten. Well, do keep in mind that USDC, one of the
    largest stablecoins, is only worth a dollar today, because we
    bailed out the uninsured deposits at Signature and SVB, right?
        Mr. Ryan. Right.
        Mr. Casten. And we tried to close that barn door in the
    GENIUS Act and say these should be in insured accounts, and the
    barn door was jacked open.
        Are they in European--are they in Eurodollars? Do they sit
    somewhere else?
        Going back to the first part of that question for you, Mr.
    Anderson, if those deposits are going out of banks, does that
    limit banks' ability to invest in the communities, the things
    we want banks to do?
        Mr. Anderson. Yes, 100 percent.
        Mr. Casten. Because the GENIUS Act does not let--you have
    to put--as you just said, Mr. Ryan, those deposits have to go
    into things like Treasuries and cash. They cannot go into, let
    me help your small business get a working capital line so you
    can go and do some innovation.
        Mr. Ryan. Correct.
        Mr. Anderson. Every dollar, uninsured or insured, that is
    not in a depository institution is not able to be deployed by
    the bank and the communities that they serve.
        Mr. Casten. Yes?
        Mr. Ryan. I do have a data point back on your previous
    question. The mid-size banks surveyed its members, and a $10
    million coverage--increase to $10 million covers 90-plus
    percent of the account holders.
        So just a data point for you. It is a sample of about 100
    banks.
        Mr. Casten. Uh-huh. Yes.
        I yield back. I am hearing the gavel.
        Thank you all. Let us get data and let us close barn doors.
        Mr. Steil. The gentleman yields back.
        The gentleman from Pennsylvania, Mr. Meuser, also the chair
    of the Subcommittee on Oversight and Investigations, is
    recognized for 5 minutes.
        Mr. Meuser. Well, I think for one time I agree with my
    colleague's final comment about data. So that makes it an
    interesting day already.
        So we are all here. You know, we have sort of a saying here
    the chairman started: ``Make community banks great again.''
        We know the data, where there are about 1,200 to 1,300 less
    community banks today than 10 years ago. A large portion of
    that was through consolidation. Whether that is a good thing or
    not, that is what happened.
        So we have been at $250,000 in FDIC insurance since, what,
    2010, with no inflation increases or anything and you cannot
    help but think, with the loss of some of those community banks
    and all this less access to capital, more small businesses have
    difficulty gaining that access to capital.
        However, we here are talking about raising the 250, or not,
    or coming up with other solutions, but we want to avoid all of
    the unintended consequences, which is why I agree with my
    colleague about data and why our chair, French Hill, wants to
    gain more data and full understanding so we avoid that.
        So, all that being said, Mr. Ryan, do you believe the $10
    million in deposit insurance coverage would help regional
    banks?
        Mr. Ryan. I believe it helps all community mid-size and
    regional banks.
        Mr. Meuser. Okay. All right. It helps.
        Consequences? Unintended?
        Mr. Ryan. I mean, I think you have to ask, is there a moral
    hazard here? Which we do not believe. When you are talking
    about protecting America's small business, there is no moral
    hazard.
        Mr. Meuser. Okay. Maybe, but that is what we are trying to
    figure out here, right?
        Mrs. Castilla, do you think that--how would they absorb the
    potential--the larger banks--the higher premiums associated
    with expanded coverage? I mean, Mr. Norquist suggested that
    higher cost, less lending. What are your thoughts on it?
        Mrs. Castilla. Yes, I am not sure how it will affect the
    large institutions, if they will be able to absorb this fairly
    easy but I also doubt that there will be very much migration
    and liquidity from the larger institutions just because we
    increase to the 10 million.
        Mr. Meuser. Okay. So how would it affect your bank?
        Mrs. Castilla. In my bank, we would ultimately start paying
    higher assessment fees. If there was a failure, I would have
    more exposure to special assessments.
        It would, I think, unlevel the playing field even further,
    for regional banks to have more liquidity sources potentially
    to deploy, to make it where it is--it just continues to be
    uneven with small community banks.
        Mr. Meuser. You believe in the reciprocal deposits? That
    works out pretty well for you?
        Mrs. Castilla. I have been using it for 20 years. I have
    never had an issue. We have gone through the financial crisis;
    we went through the SVB fiasco and never had any kind of
    volatility there.
        My customers, in contrary to Mr. Ryan, are very astute when
    it comes to utilizing reciprocal networks. We have this
    integrated into their online banking systems. They are able to
    select which banks they want to exclude. They are able to do
    due diligence on these banks as if they were driving from lobby
    to lobby opening $250,000 accounts.
        We find it as a strength and a way to really continue to
    enhance our relationship with the customer.
        Mr. Meuser. Okay. It does seem like a tactic to deal with
    the $250,000 FDIC limit, right?
        Mrs. Castilla. Yes. So the consortiums of banks could
    easily get together too, and they have, to do this same thing
    but it basically is a technology solution that makes it where
    the customer does not have to drive from bank-to-bank----
        Mr. Meuser. Right.
        Mrs. Castilla [continuing]. where we now have a technology
    platform and are able to distribute----
        Mr. Meuser. Sure.
        Go ahead, Mr. Ryan. You want to say something?
        Mr. Ryan. Yes. If you are a small-business owner and you
    were used to receiving one bank statement and now you have to
    receive 30 bank statements as a result of using reciprocal
    networks, that is more complex.
        I would also add, these conversations work during normal
    periods of time----
        Mr. Meuser. Okay.
        Mr. Ryan [continuing]. but in times of crisis, it is really
    hard to explain how reciprocal networks work.
        Mr. Meuser. I can----
        Mrs. Castilla. I will just say that we do consolidate our
    statements to one statement for our customers.
        Mr. Meuser. Okay. I can understand both your--both your
    positions.
        Mr. Furlow, what are the banks'--what is your position,
    really quick--and I want to get to Mr. Norquist--on the
    reciprocal? Because you view a lot of banks and were your
    community banks in jeopardy during the SVB crisis?
        Mr. Furlow. During the SVB crisis we have a lot of
    community banks where they have large depositors. We have a
    huge oil and gas industry, for example, in the State of Texas,
    and you have large depositors in community banks. Their lending
    capability is impacted when you see an outflow.
        So, again, our proposal on E-TAG to make sure we have a
    backstop on the front end to stop those outflows right from the
    get-go is terribly important.
        Mr. Meuser. Thank you.
        Mr. Norquist, what is the solution here?
        Mr. Norquist. Well, not to go deeper. I mean, when we went
    up to $100,000, things did not get better; they got worse.
    And--in the past.
        We should open the door more to private-sector insurance.
    This works in many, many industries. You know, we deal with
    everything from floods to hurricanes with insurance. Banks can
    make the same decisions----
        Mr. Meuser. Well, we will have to talk offline. Apologies.
    My time is over.
        I yield back, Mr. Chairman.
        Mr. Steil. The gentleman yields back.
        The gentlewoman from Massachusetts, Ms. Pressley, is now
    recognized for 5 minutes.
        Ms. Pressley. Thank you, Mr. Chair.
        One vital institution keeping our communities afloat and
    helping everyday people build wealth and stability are
    community development financial institutions, or CDFIs.
        Now, people at home may not know them as ``CDFIs,'' but
    they are the local credit unions with consumer-friendly
    interest rates, the affordable-housing nonprofits with the
    units that you can actually still afford, and the lenders
    keeping the community health centers in your neighborhood
    thriving.
        There are dozens of CDFI branches in Massachusetts serving
    communities in need that received over $400 million from the
    CDFI Fund. Now, these funds financed nearly 600 affordable
    housing units. We all know there is an affordability crisis in
    the country, and we certainly see that play out when it comes
    to housing.
        Housing is certainly much more than shelter, you know? It
    is dignity. It is health. It is refuge. It is social and
    economic mobility. So that is 600 families with a safe place
    for kids to study, for parents to rest after a long day at
    work.
        So we should be celebrating our CDFIs. We should not be
    attacking them, but the Trump Administration is trying to
    illegally fire the entire agency to stop this essential work.
    It is my hope that in today's hearing we can find ways to
    improve deposit insurance coverage for these community-centered
    institutions.
        Mr. Anderson, some depositors have expressed concerns that
    their money will not be as safe in a smaller bank. These
    misconceptions are dangerous and contributed to the depositor
    run we saw in the Silicon Valley Bank failure in 2023.
        Can you explain why CDFIs and also why minority deposit
    institutions, or MDIs, are safe and reliable?
        Mr. Anderson. Thank you for your question, Congresswoman.
        I think MDIs and CDFIs are vital to our Nation's economy.
    Community banks in general serve as engines for economic growth
    in the neighborhoods and in the towns and in cities that they
    serve, both in rural America and in cities.
        I think it is equally important for us to have a diverse,
    dynamic financial system that has small banks, mid-size and
    regional banks, and G-SIBs. It is in our broader national
    interest for us to have institutions that can serve various
    types of borrowers and customers and are positioned to make
    offerings of products and services to all different types of
    corporate entities and people.
        Ms. Pressley. Thank you, Mr. Anderson.
        Mr. Ryan, could you expound, building on that point by Mr.
    Anderson, about, if we were to increase the deposit coverage,
    it is not just beneficial to urban communities, but how does
    this help rural communities better navigate a crisis? Could you
    speak to that?
        Mr. Ryan. Yes. Old National serves many rural communities,
    and they are the lifeblood of America, I believe, and it is
    important to be able to support all of those institutions that
    are in there, including CDFIs and MDIs.
        In fact, we are in the process, as I stated earlier, of
    helping create a new MDI for the State of Indiana that is
    really going to reach out to those communities and help with
    those projects like low-income housing and other affordability
    needs.
        I think it is paramount to have higher insurance limits to
    help these smaller institutions not only survive but actually
    thrive.
        Ms. Pressley. Thank you so much.
        Mr. Anderson, for the folks watching at home, how do
    everyday people not connected to these banks benefit indirectly
    by improved depositor confidence?
        Mr. Anderson. I think depositor confidence is a vital
    component to the trust in the broader financial system. When
    you have small banks in Oklahoma that fail or you have
    Washington Mutual that fails, it threatens people's confidence
    and their faith in the financial system.
        So it is incumbent on this body and on regulators to ensure
    that our banks are safe and sound and that our financial system
    is strong and resilient and we have a framework that resolves
    institutions that fail through an orderly and rapid process.
        Ms. Pressley. Thank you.
        So I represent the Massachusetts Seventh Congressional
    District, and CDFIs in my district include organizations like
    the Boston Impact Initiative; Dorchester Bay, a neighborhood
    loan fund; and of course, the largest Black-owned bank in the
    country, OneUnited. All call the MA Seventh their home. They
    provide housing, childcare and healthcare facilities,
    affordable healthy food and banking, and wealth-building
    opportunities to consumers as well as to entrepreneurs--truly
    an essential role.
        Now, while Republicans in the Trump Administration are
    working actively to dismantle the CDFI Fund, Democrats are
    fighting to protect it. If my colleagues across the aisle were
    serious about lowering costs and growing our economy, they
    would stop attacking CDFIs.
        Continued Federal funding and deposit insurance reforms
    that protect CDFIs are essential and will help our Nation's
    economy thrive.
        Thank you.
        Mr. Steil. The gentlewoman yields back.
        I now recognize myself for 5 minutes for the purpose of
    asking questions.
        We are all concerned about the resiliency and strength of
    our banking system. I want to ask a few technical questions, if
    I can, as it relates to the proposal and the effects of it.
        I will start with you, if I can, Mr. Ryan.
        Obviously, many companies are sweeping their cash into
    interest-bearing accounts and only move it back into non-
    interest-bearing accounts as they pay expenses. Is this impact
    of non-interest-bearing accounts as it moves into interest-
    bearing accounts--how would that impact the proposal from the
    Senate?
        Mr. Ryan. Well, the proposal from the Senate is really
    centered around non-interest-bearing business accounts----
        Mr. Steil. So, as they sweep it into an interest-bearing
    account, would it----
        Mr. Ryan. That would not be covered under, I think, this
    proposal.
        Mr. Steil. Is that what the vast majority of businesses do?
        Mr. Ryan. I think only the largest businesses utilize those
    sweep functions that have those excess investment dollars. So,
    really, most of our small-business accounts leave them in their
    operating accounts.
        Mr. Steil. Thank you very much.
        Let me continue on with you, if I can.
        Currently, the data that banks report on transactions on
    nonpartisan--or, on non-transaction accounts to the FDIC
    combines individual business partnerships and corporations
    together. Then banks combine all those types of accounts and
    account holders together when they report on their insured and
    uninsured deposits.
        Actually, let me start with you, Mr. Furlow.
        I will let you comment on this as well, Mr. Ryan, if I can.
        Do you think the current data the FDIC has is sufficient to
    enact any of the proposals that we are talking about?
        Mr. Furlow. I think we have more work to do. Again, I think
    that has been addressed on the Senate side and through the
    hearing here today. We need more data.
        Mr. Steil. So you would need more data so the banks would
    have a new reporting requirement?
        Mr. Furlow. Uh----
        Mr. Steil. Or we would need to put one in place. Is that an
    accurate statement?
        Mr. Furlow. If we need to collect the data, correct.
        Mr. Steil. But you are saying we would need to, off the
    first question. Is that accurate?
        Mr. Furlow. I am sorry. I do not understand the question.
        Mr. Steil. Would you need to collect the data to implement
    the proposal?
        Mr. Furlow. Which proposal?
        Mr. Steil. The proposal from the Senate, the Hagerty----
        Mr. Furlow. Oh, from the Senate----
        Mr. Steil [continuing]. the Hagerty proposal.
        Mr. Furlow [continuing]. proposal. I would assume that you
    would have to do that. Again, this is the biggest question that
    we have, is, why are we setting thresholds at certain----
        Mr. Steil. But not even getting into the threshold amount,
    I am just talking about the burden.
        Maybe I can come to you, Mr. Ryan. Does that place a new
    and additional burden on banks?
        Mr. Ryan. I think it is a relatively small burden to
    overcome.
        Mr. Steil. It is.
        Mr. Ryan. We deal with call report changes routinely, and
    collecting this data and providing it to the government
    regulators is not a heavy burden for most financial
    institutions.
        Mr. Steil. Go ahead, Mrs. Castilla.
        Mrs. Castilla. Small banks currently do not report this
    data in the call report, so it would be a completely different
    framework for the Nation's 4,000 community banks.
        Mr. Steil. How much of a burden would that be?
        Mrs. Castilla. Incredible. These are manually calculated
    numbers, and----
        Mr. Steil. Give me a rough estimate of what that would look
    like if you had a community bank that is in Wisconsin. How many
    hours of work or investment----
        Mrs. Castilla. Yes. I mean, the technology would be over
    $100,000, most likely, annually, to be able to upgrade our
    technology to be able to compute this type of data. In man-
    hours, I have 70 people. I probably would have to add half a
    person, another person, to be able to handle the data
    analytics.
        Mr. Steil. Thanks. That helps frame what that would look
    like for us.
        I will give you an opportunity, Mr. Furlow. We talked about
    the valuation. Why this valuation? Why not a different one?
        Mr. Furlow. Well, I think that is the question that we
    have. Unfortunately, we have folks who have different positions
    on this issue because we do not--why 20 million? Why 10
    million? You know, those questions are still out there.
        I can tell you, my association is open to different
    proposals, but where you draw the line on those, it will impact
    the cost, who pays.
        These are all things that are still out there and why data
    collection is so important more broadly, not just in the
    framework that you had just mentioned with Mrs. Castilla.
        Mr. Steil. Thank you very much.
        I want to come to you, Mr. Norquist, if I can. I think you
    and I always start from a place of, the private sector is
    better to regulate than the Federal Government. The Federal
    Government is a backstop if the private sector is incapable of
    doing the job.
        As we think about this broader space, how would this
    proposal impact private-sector innovation that could otherwise
    come online?
        Mr. Norquist. Well, it is being put forward instead of
    private opening up to private-sector innovation, particularly
    in questions of insurance.
        We should be making it easier for banks to get insurance
    and get the government out of some of the regulations, some of
    which you guys did, in taking part in some of the reforms
    from--2001? 2018. I am sorry. I was trying to remember the
    date, but we took some of the Dodd-Frank mistakes out and
    opened up for more opportunities.
        So I think you just need more alternatives instead of one,
    single government program----
        Mr. Steil. Because of the time, thank you----
        Mr. Norquist. Yes.
        Mr. Steil. Thank you for that comment and getting it on the
    record.
        I will yield back.
        I will now recognize the gentlewoman from Michigan, Ms.
    Tlaib, for 5 minutes.
        Ms. Tlaib. Thank you so much.
        I think it was Mr. Ryan that said, in the wake of the 2023
    regional bank crisis--I am not sure; maybe, Mr. Anderson, you
    can confirm--we saw that the--during that crisis, small
    businesses and other depositories moved their money from
    smaller institutions to the mega-banks.
        Is that correct, Mr. Anderson?
        Mr. Anderson. Deposits did move up to larger banks, but I
    think it is unclear whether those were small businesses or----
        Ms. Tlaib. Okay. Well, I think people assume that the
    government will swoop in and bail out the big banks, because we
    did it before. Since, if they fail, they might take the rest of
    the financial system down, right? So we come in and swoop in
    and bail them out. My residents still talk about the bailout.
        So people count on this implicit government support for the
    mega-banks, and they see them as a safer bet because the
    government can come in and swoop in and save them, correct?
        Nobody wants to admit that. It did happen, actually.
        Okay.
        When we see deposit inflows to the mega-banks, does not
    this only worsen the already-massive consolidation we have seen
    in the banking sector in recent decades, Mr. Anderson?
        Mr. Anderson. I think that there is a move to consolidation
    amongst the banking industry as our numbers of depositor
    institutions in the U.S. continue to decline because of bank
    mergers.
        Ms. Tlaib. Okay.
        Do you think--is it not deposit insurance expansion
    essential if community banks and credit unions are to compete
    with the biggest banks?
        Mr. Anderson. I think that the potential increase in
    deposit insurance adds a benefit to customers by virtue of them
    leveraging these non-interest-bearing transaction accounts.
        Ms. Tlaib. Well, one proposal for a fairer system would
    have--folks are proposing having the largest banks pre-fund the
    Orderly Liquidation Fund and then they would have to pay an
    upfront fee for, let us be honest, the implicit government
    subsidy that is there to protect them.
        Mr. Anderson, what is an Orderly Liquidation Fund (OLF),
    and why do we have pre-funded deposit insurance? Pretend our
    parents are watching and you have to explain this to them.
        Mr. Anderson. Yes.
        So my general sense is that the depository institution fund
    serves a unique purpose in serving as a backstop for all
    depositors. I think the proposals in the Senate currently that
    isolate the large banks should take an approach where it is an
    equitable, level playing field so that----
        Ms. Tlaib. So we are telling mom and dad at home that we
    are isolating the big banks from having to pre-fund this,
    correct?
        Mr. Anderson. I think the ultimate impact on doing that is
    on the customer, because we do not want to disadvantage certain
    small and medium-sized businesses from choosing a community
    bank over choosing a large bank. If the intent of the
    legislation is to provide protections for those customers, we
    should do it regardless of where they choose to bank.
        Ms. Tlaib. Gotcha.
        Let us turn to another type of uninsured deposit,
    stablecoins. Stablecoin issuers are basically banks. They
    really are shadow banks but stablecoins are not backed by
    deposit insurance.
        With the passage of the GENIUS Act, crypto exchanges can
    now offer customers so-called, ``rewards'' that look very much
    like interest paid by a bank.
        So, Mr. Anderson, when people can earn interest-like
    rewards on their stablecoins, does that not incentivize the
    expansion of what is basically uninsured deposits?
        Mr. Anderson. I am not sure if I have a good answer to that
    question today.
        Ms. Tlaib. Oh, it is a ``yes.'' You will see.
        Mr. Anderson, is this not potentially destabilizing our
    regulated banking system right now by diverting deposits from
    banks into stablecoins?
        Mr. Anderson. I think it is less than optimistic to take
    deposits from banks and put them outside of the regulated
    financial system, in large part because banks are not able to
    lend with those deposits.
        Ms. Tlaib. So, last question: Are there any other uninsured
    deposit equivalents issued by shadow banks that we should be
    concerned about?
        Mr. Anderson. Not that I know of.
        Ms. Tlaib. Okay. Thank you.
        I yield.
        Mr. Steil. The gentlewoman yields back.
        Ms. Waters. Should I do this now?
        Mr. Steil. If you would like.
        Ms. Waters. I would ask unanimous consent to submit
    statements for the record from various trade groups who have
    either endorsed my deposit insurance reform bill or otherwise
    urge our committee to take bipartisan action, including:
    Community Development Bankers Association, representing CDFI
    banks; Mid-Size Bank Coalition of America--that is, the MBCA;
    Independent Community Bankers Association; American Bankers
    Association; America's Credit Unions; and prior testimony from
    the National Bankers Association, who also endorsed my bill.
        Mr. Steil. Without objection.

        [The information referred to was not submitted prior to
    printing.]

        Mr. Steil. The gentlewoman from California, Mrs. Kim, is
    now recognized for 5 minutes.
        Mrs. Kim. Thank you, Chairman and Ranking Member, for
    hosting today's hearing.
        I want to thank all of the witnesses for joining us today.
        You know, I am the only California and Western State
    Republican on this House Financial Services Committee, so the
    crisis at the Silicon Valley Bank was extremely concerning.
    This is the first year of my second term, when I was assigned
    to serve on this committee, we had to deal with that.
        So, in the following months, I reached out to the banks in
    my district, and I worked on legislation and letters targeted
    at bringing some stability to the banking system and
    transparency as to the decisionmaking process that was made by
    the Biden Administration's regulators.
        As we evaluate numerous potential solutions, it is
    important that we carefully think through each of them rather
    than rushing for a quick fix, right?
        So I want to ask you a question, Mr. Ryan. During the
    Silicon Valley Bank crisis, did your bank receive any deposit
    inflows or new account openings?
        Mr. Ryan. We did receive some new deposits during that
    timeframe. There were certainly lots of discussions being had
    by many business owners.
        We also lost some deposits to some of the large
    institutions. Some of those boards of directors, whether they
    be nonprofits or for-profit, felt like they had a fiduciary
    obligation, and they felt like there was a perceived safety in
    moving money to the large institutions.
        Mrs. Kim. That goes to the question I wanted to ask. Like
    you did have some conversation with your colleagues, and when
    you and your colleagues asked potential depositors as to why
    they chose larger banks over banks like yours, how often was
    that reason related to deposit insurance coverage limits?
        Mr. Ryan. That was the primary reason they were moving
    deposits, were the perceived safety of being at a larger
    institution.
        Mrs. Kim. Uh-huh.
        You know, I heard a lot about how globally significant
    banks received an increase in deposit inflow during that 2023
    crisis. However, I am curious as to what deposit movement
    looked like across different bank sizes and how much of it
    remained within the community and the mid-size bank range.
        So let me ask you, Mrs. Castilla: I know that in the case
    of your bank, Citizens Bank of Edmond, you were actually
    opening new accounts during the 2023--that crisis, right?
        So can you tell us, when you discussed with your depositors
    as to why they were attracted to Citizens Bank, what were the
    reasons they gave you for wanting to open accounts with your
    bank?
        Mrs. Castilla. Thank you for that question, ma'am.
        We were very transparent and in front of the
    communications, sharing non-public information with both our
    customers and the public in general. So we had current
    customers moving accounts to us, and we also had an increase
    around the Nation of consumers and businesses wanting to bank
    with us.
        We actually had a technology provider provide us with a
    discounted account-opening solution so that, nationally,
    individuals could open accounts at Citizens Bank of Edmond
    because we were seen as such a trusted source during that time
    of crisis.
        Mrs. Kim. Well, it is clear that your leadership at the
    Citizens Bank made a clear difference----
        Mrs. Castilla. Thank you.
        Mrs. Kim [continuing]. so thank you for that. I want to
    commend you for the national standard that you set during that
    difficult time.
        So let us look at some of the potential solutions that are
    attached to today's hearing, regarding collateralization,
    custodial deposits, reciprocal deposit reform. Is it possible
    to combine those potential solutions with an increase in
    deposit insurance as well?
        Mrs. Castilla. Well, ma'am, I just do not see, with those
    solutions, that a deposit insurance increase is needed, because
    I have more than enough availability with reciprocal deposits.
    I mean, I can get hundreds of millions of deposit insurance
    accessibility to individual customers, and it is a very safe
    network that is integrated into our solutions, that it really
    can create a competitive advantage over larger institutions in
    our area.
        Mrs. Kim. You know, one potential solution that I have to
    reform community banking is the Community Bank LIFT Act. This
    bill would reduce the community bank leverage ratio from 9
    percent to at least 8 percent or even lower, right?
        So, Mrs. Castilla, how do you see the Community Bank LIFT
    Act as helping the community bank ecosystem and potentially
    preventing future bank failures?
        Mrs. Castilla. Yes, ma'am. Thank you for that question. I
    do not know a lot about the specific act, but a community bank
    leverage ratio--reducing that would allow us to deploy more of
    our funds into our community.
        We currently, today, are selling 30 million of our
    deposits, so about 10 percent of our asset size, to one-way
    sell, because my current community bank leverage ratio number
    is so high that I cannot deploy them locally.
        Risk-weighted assets are also punitive for small banks, and
    so that is another way to consider as well.
        Mrs. Kim. Thank you.
        I yield back.
        Mr. Steil. The gentlewoman yields back.
        The gentleman from California, Mr. Liccardo, is now
    recognized for 5 minutes.
        Mr. Liccardo. Thank you, Mr. Chair.
        I appreciate the testimony of our witnesses today. I think
    I am coming around to the view that we very certainly need
    better data, certainly, about the depository inventory that
    many banks have, understand what percentage is insured and
    uninsured, and it seems to vary quite a bit by size and type of
    bank.
        I also appreciate the need for a permanent TAG Program that
    Mr. Furlow suggested. I think Ranking Member Waters has a good
    bill on this, and I look forward to seeing how we can create a
    TAG Program that does not require congressional authorization
    to be activated.
        I guess I just want to focus on this issue about a targeted
    increase in the Foreign Direct Investment (FDI) and I
    appreciate that this question of moral hazard comes up. The
    logical answer to respond to how do we mitigate more hazard is,
    let us try to limit this to non-interest-bearing accounts.
        I think, Mrs. Castilla, both in your statements as well as
    in your written remarks, you allude to the fact that there are
    other ways of compensating depositors. I think you mention
    inflated yields on linked accounts, sweep accounts, rebates,
    rewards checking, loan discount, service credits, toasters,
    tickets to Bad Bunny concerts--
        Mrs. Castilla. Right.
        Mr. Liccardo. Whatever it might be, we know that there
    could be ways of incentivizing folks to try to take advantage
    of this much higher limit.
        I guess I am trying to understand from those who advocate
    lifting the cap in some way, even on a targeted basis, how do
    we prevent banks from engaging in that kind of activity that
    would encourage a rush to the more insured deposits? Any
    thoughts?
        Yes, sir?
        Mr. Ryan. I do not see that as a risk today. I think the
    vast majority of banks operate--where we do have multiple
    deposit accounts for relationships, I do not see that
    increasing the limit creates a new set of risks that we cannot
    anticipate, in terms of linking these accounts together and
    using other incentives.
        It certainly does not happen at Old National Bank today,
    and I am very familiar with all the mid-size banks, and I do
    not see that as an issue either.
        Mrs. Castilla. Ignoring seems like a strange defense to
    that type of situation, so I think that there would have to be
    additional policing and regulation and oversight if you are
    introducing restrictions related to this type of account, and I
    do not think any of us really want that.
        Mr. Liccardo. Mr. Anderson?
        Mr. Anderson. I agree that defining the type of account
    through regulation is critical, so we do not have a gaming. I
    agree with Mrs. Castilla, but I also think that it is important
    to understand that banking relationships are very sticky,
    right? If you run an auto body shop or a nail salon or a dry-
    cleaning service, your choice of bank is probably going to be
    decided based on the locality of the bank in proximity to your
    home or to your business.
        So there is a pretty defined universe of institutions--for
    the types of customers we are talking about. We are not talking
    about John Deere and Amazon and Home Depot that have global,
    multinational businesses but for the small and medium-size
    enterprises, the 501(c)(3)s, the religious organizations, they
    will generally bank local, and those deposits within those
    institutions are going to be pretty sticky.
        Mr. Liccardo. Thank you, Mr. Anderson. I appreciate the
    point.
        As we are thinking about this really, we are talking about
    who pays. Ultimately, there are transactional costs involved.
    There are market-based solutions to address uninsured deposits,
    and we have talked about what those are--Federal Home Loan Bank
    (FHLB) letters of credit, private insurance, reciprocal
    deposits, brokered deposits, et cetera. Those impose costs. We
    know, on transaction fees, I think Mrs. Castilla referred to
    12\1/2\ basis points on reciprocal deposits.
        Now, if we look at the alternative here, which is--or, one
    alternative, which is the increase in FDI, then there are
    clearly fees that have to be paid. Is there any way we can get
    our arms around--is there any data out there, any studies? Help
    us understand, in the aggregate, are we stuck with more costs
    under the current system or under a regime in which we are
    lifting FDI and imposing these fees on banks?
        Mr. Ryan. I can speak to the mid-size bank perspective on
    this.
        Mr. Liccardo. Yes.
        Mr. Ryan. You know, we believe, even if there is a modest
    increase in the insurance costs--and we estimate that could be
    somewhere between 2 to 5 basis points--the alternative is we
    have to go to national markets or wholesale markets or brokered
    CD markets and raise money at 25 to 50 basis points. So we go
    from 2 to 5 basis points for additional insurance costs up to
    25 to 50 basis points.
        I just want to make one quick point on your last question.
    Forty percent of the deposits are held by the Nation's largest,
    the G-SIBs institutions, and we assume those are all fully
    insured.
        Mr. Steil. The gentleman's time has expired.
        Mr. Liccardo. Thank you. I yield.
        Mr. Steil. The gentleman yields back.
        The gentleman from Nebraska, Mr. Flood, who is also the
    chair of the Housing and Insurance Subcommittee, is now
    recognized for 5 minutes.
        Mr. Flood. Thank you, Mr. Chairman.
        Before I start my questions, I have to compliment Mrs.
    Castilla.
        Back in 2019, I was trying to remodel the downtown of
    Norfolk, Nebraska, and I looked at who in the Nation had done
    the best job with their downtown. This community banker from
    Edmond, Oklahoma, hosted me for the better part of a day. No
    idea we would ever be doing this. She was gracious with her
    time. She is not just a community banker; she is a community
    advocate, and we can all be very proud of what she has
    accomplished.
        So it is nice to see you this morning.
        With that, let me begin my questions.
        We all remember the uncertainty right after SVB failed and
    First Republic Bank. Thankfully, we were able to avoid the
    worst possible outcomes during that time of instability, and I
    really credit both the Republicans and the Democrats on this
    committee.
        I remember a phone call with the Treasury Secretary; our
    former Chair McHenry; obviously our vice chair at that time,
    Mr. French Hill; our ranking member, Maxine Waters. There was a
    lot of uncertainty, and we stuck together as a Nation to
    prevent a contagion from infecting our entire financial system.
    It gave me a lot of confidence that Congress can take on tough
    problems.
        So, in the lead-up to those bank failures, there were lots
    of deposit flows, specifically from the troubled institutions
    like Silicon Valley Bank and First Republic. This makes sense.
    When depositors start getting concerned that an institution is
    in poor financial health, they often pull their money, but our
    conversation today contemplates broad, sweeping changes to
    deposit insurance that will have implications that will affect
    all institutions. In order to justify a particularly large
    increase in deposit insurance, especially for just one type of
    account--non-interest-bearing--I would be interested in a
    better understanding how deposit flows have been moving over
    the last several years.
        First question, if you could be brief in your responses.
    This is for all of you.
        Aside from deposits that left the specific institutions
    that failed in 2023, have you seen evidence of further deposit
    flows from other institutions toward the perceived safety of a
    G-SIB bank or a government money market fund?
        We will start with you, Mr. Ryan.
        Mr. Ryan. I would say the long-term trends are to take
    money out of non-interest-bearing accounts and move them into
    interest-bearing accounts.
        We have also seen long-term trends where the biggest banks
    are only getting bigger. You might call that around--maybe it
    is a product or technology issue, or maybe it is a perceived
    safety issue, but the long-term trends are clear, that bigger
    banks only are getting bigger.
        Mr. Flood. Thank you.
        Mrs. Castilla?
        Mrs. Castilla. So good to see you again, sir.
        Our core deposits have grown 26 percent since the Silicon
    Valley Bank failure. We have zero brokered deposits, zero
    listing services deposits. I only have 5 million of long-term
    loans from Federal Home Loan Bank. We are selling $30 million
    in deposits I would love to deploy in my community, and we have
    seen the growth be very substantial and strong.
        Mr. Flood. Thank you.
        Mr. Furlow?
        Mr. Furlow. Our community banks in the State of Texas
    manage very well the ebbs and flows of the economy, but when
    these systemic types of issues--COVID and certainly the SVB
    crisis--occur, we have absolutely seen outflows from our
    community and mid-size banks into the largest of institutions.
        Mr. Flood. Mr. Norquist, do you want to provide a
    perspective.
        Mr. Norquist. What they said.
        Mr. Flood. Okay.
        Mr. Anderson. I think it is well-evidenced that there were
    outflows from mid-size and regional banks to the larger G-SIBs
    during the banking stress of 2023, but I think that was
    somewhat isolated, and I do not think it is or has carried on
    beyond that stress event.
        Mr. Flood. Okay.
        So maybe this is more for Mrs. Castilla and Mr. Ryan.
        Are you sensing some anxiety among some of your larger
    depositors? Are they thinking like, okay, I have my payroll
    account at a bank in Edmond or a bank of yours, Mr. Ryan, in
    Texas--are they thinking about that? Are they expressing
    anxiety? Are they asking questions about the special insurance
    you can buy that they would pay for over and above?
        Mr. Ryan. We use very little deposits in the reciprocal
    networks. I think in periods of stability they are not asking
    those questions. It is only in periods of time where there is
    great instability and great uncertainty, I think, those
    questions get asked.
        We win because we have closer relationships in our
    communities than the large institutions.
        Mrs. Castilla. Sir, we do not wait for them to ask those
    questions. We offer them the solutions when we see that they
    are exposed with uninsured deposits. Our tellers, our personal
    bankers all are very well-equipped to talk about reciprocal
    deposits and how customers, whether it is through account
    structuring or using the reciprocal system, can maximize their
    insurance coverage.
        Mr. Flood. Well, I will tell you what I like about this
    hearing, is, I like the idea that we are talking about these
    regionals and these community banks. I do not want to live in
    Europe, with one or two banks in a country. I want to live in a
    world where we have State-chartered banks, we have Federal-
    chartered banks, where we have community banks, regionals, and
    G-SIBs. That is the magic of our financial system.
        So, while we may disagree on a path, let us stay focused on
    making sure we can maintain our diversity.
        With that, I yield back.
        Mr. Downing [presiding]. The gentleman yields.
        Without objection, I am entering into the record a letter
    from 11 conservative groups raising opposition to increasing
    FDIC deposit accounts.

        [The information referred to can be found in the appendix
    on page 191.]

        Mr. Downing. The gentleman from Texas, Mr. Green, who is
    the ranking member of the Subcommittee on Oversight and
    Investigations, is now recognized for 5 minutes.
        Mr. Green. Thank you, Mr. Chairman and I thank the ranking
    member. I am grateful that we are having this hearing. I think
    it is exceedingly important.
        Let me start with an expression of gratitude for posting
    H.R. 3716, the Systemic Risk Authority Transparency Act. I
    think this is an important piece of legislation because it will
    allow us to have timelines similar to those that we had after
    the failure of some significant institutions.
        Having said that Mr. Ryan, you do believe that we should
    raise the FDIC limit. Is this correct?
        Mr. Ryan. Correct.
        Mr. Green. Have you announced a number?
        Mr. Ryan. Well, we have done some surveying of mid-size
    banks across the country, and we believe the number of around
    $10 million would cover 90 percent of those total accounts. If
    we raise the number to $20 million, for example, we pick up
    about another 5 percent, to 95 percent.
        Mr. Green. You would differ with Mr. Norquist, I take it.
    Mr. Norquist seems to think that this can be handled by the
    private sector.
        Mr. Ryan. I think that is concentrating risk in unknown
    sets of entities, whether it is reciprocal networks or private
    insurance. I think that creates a whole new set of risks that
    we have not quite evaluated yet.
        Mr. Green. Mrs. Castilla, it seems that you are okay with
    raising, but you are not sure that it is the proper thing to do
    right now.
        I am not sure that I have characterized your position
    appropriately, so if I have mischaracterized, would you please
    help me?
        Mrs. Castilla. Thank you, sir.
        I believe that any change should be data-driven and that we
    should look at what the data is telling us and then let that
    drive policy.
        Right now, when I look at my customer base, I am able to
    use market tools right now to cover just about any deposit that
    walks in my door. I have utilized reciprocal networks, pledging
    securities, or using a letter of credit from the Federal Home
    Loan Bank. I can take care of any customer.
        I also pay them interest and so, for me, I will not be
    moving my customers to non-interest-bearing accounts. I view
    myself as a trusted advisor. We are in an interest rate
    scenario right now where interest rates are higher. So, when a
    nonprofit comes to me and they have a million dollars, I am
    going to counsel them on----
        Mr. Green. Okay. I am----
        Mrs. Castilla [continuing]. earning interest on that.
        Mr. Green [continuing]. going to have to move on. Thank
    you.
        Mrs. Castilla. Yes, sir.
        Mr. Green. Mr. Furlow?
        Mr. Furlow. Yes, sir. Thank you, Congressman, for----
        Mr. Green. From Texas.
        Mr. Furlow. Yes, sir.
        What we did as we put together our E-TAG proposal and our
    two-step proposal was to go back to 2023 and deconstruct what
    was literally happening at that time. I think that you may
    recall, everyone was asking the question, do we need more than
    $250,000 in coverage and raise that limit? We were talking
    about maybe half a million, 750,000, a million. The highest
    number I heard during that timeframe was $2 million.
        So the question that then becomes is, well, where is the
    right threshold? I do not know that we know the answer to that.
    Which is why, again, we are proposing the E-TAG proposal, which
    is a two-step process. Let us get a backstop in place so we can
    figure out where the threshold is and where we can set
    essentially a fair threshold----
        Mr. Green. I will have to----
        Mr. Furlow [continuing]. for banks of every size.
        Mr. Green. I think I have your point. Let me move on.
        Mr. Norquist, no disrespect, but I know your position, so I
    will move to the next person, if you do not mind.
        Sir, your position, please?
        Mr. Anderson. Yes, I think a change to the regulatory
    framework for deposit insurance is incredibly important to
    study, and it should be empirically based, whatever the
    threshold amount is.
        Today, we only have a single system of deposit insurance
    for a handful of different account types at $250,000 but the
    conversation we are having now is a separate classification of
    non-interest-bearing transactional accounts.
        Mr. Green. Let me do this----
        Mr. Anderson. And I think that----
        Mr. Green [continuing]. because time is limited, and I have
    50 seconds. Permit me to ask you, Mr. Anderson, do you think
    that this can be accomplished with the process that Ms. Waters
    has proposed? Because, in the rulemaking process, you do
    acquire empirical evidence before you make the rule.
        Mr. Anderson. I think the proposal that Ranking Member
    Waters has put forward is incredibly thoughtful and I think
    there are components of it that should be applied directly--I
    think, the emphasis on a study and ultimately allowing the
    FDIC, who has not yet weighed in on this debate, to provide a
    critical recommendation on what a potential increase for these
    non-interest-bearing transaction accounts would look like.
        Mr. Green. Well, thank you.
        I am supportive of the legislation proposed by Ms. Waters.
    I am hopeful that we can move this legislation. There are many
    community banks that do believe they need a higher limit to
    attract business customers.
        Thank you very much. I yield back.
        Mr. Downing. The gentleman yields.
        The gentleman from New York, Mr. Lawler, is now recognized
    for 5 minutes.
        Mr. Lawler. Thank you, Mr. Chairman.
        I am glad that we are here having this discussion today,
    because it is critical that we reflect upon the impacts of
    potential reforms. While the actions of the past few years
    certainly warrant this conversation and the search for possible
    systemic improvements, we must ensure we are acting with proper
    data and a thorough understanding when changing a system that,
    as it stands, is generally well-capitalized and successfully
    and fully insuring over 99 percent of deposit accounts at U.S.
    financial institutions.
        Mrs. Castilla, when you are dealing with customers at a
    bank like yours, be they individuals, families, or businesses,
    I imagine there are merits to having uniform deposit insurance
    for everybody that is easy to understand.
        So, if we do pursue some of the proposals that are out
    there that would change that, what do you think the
    consequences would be if it became a two-tiered deposit
    insurance level based on whether or not the account holder is
    an individual, family, or business?
        Mrs. Castilla. Yes, so I believe this becomes quite
    confusing, both for the consumer, the businessperson, as well
    as the bank staff that is trying to stay up-to-speed, to
    calculate real-time what the deposit coverage is for a
    particular account. There is so much complexity with how small
    businesses set up business accounts as well. It can be very
    difficult in our systems to be able to track that
    appropriately.
        Additionally, all of these--the reporting through our call
    report system is not adequate to be able to have this
    bifurcated system of having the non-interest-bearing accounts
    covered.
        I fully support some type of indexed or--as we analyze, an
    overall look at deposit insurance to see if adjustments need to
    be made.
        Mr. Lawler. Understood.
        Mr. Furlow, if we are going to consider proposals to target
    certain kinds of accounts with higher deposit insurance limits,
    we need to ask ourselves what the purpose of deposit insurance
    is and who we are seeking to provide extra insurance to. With
    less than 1 percent of insured deposit accounts over the
    current $250,000 limit, the overwhelming majority of Americans
    have 100-percent deposit insurance coverage.
        Can you tell us what kinds of deposit accounts you think
    policymakers should be targeting and why?
        Mr. Furlow. Well, again, when we looked at our proposal on
    E-TAG, we went back to 2023, and it was those transaction
    accounts that we thought that we should look at, because that
    is primarily where the issue was at that time. So we
    deconstructed that event, and that is why we focus on the
    transaction accounts.
        Mr. Lawler. Mr. Norquist, same question.
        Mr. Norquist. Again, there are opportunities to have
    private insurance, and we should look at those. I think when we
    went from $40,000 up to $100,000 coverage, we had the disasters
    of the S&L. I am not sure that increasing the moral hazard of
    guaranteeing some deposits is a good idea. I mean, it has not
    worked in the past; it has gotten less helpful.
        Mr. Lawler. Mr. Ryan, were we to target specific kinds of
    accounts with increased taxpayer-backed insurance coverage,
    there would be some pretty big incentives to mischaracterize
    the type of accounts you own to benefit from the higher
    coverage.
        Bank regulators would have to craft new regulations and
    reporting requirements to target coverage, and bank supervisors
    would then be tasked with a new duty of doing due diligence to
    be sure that no one was gaming the system.
        How would you address that?
        Mr. Ryan. Well, I would start with insurance is covered by
    the banking industry. These are the fees. These are not
    taxpayer-funded accounts. This is covered by industry, and we
    have a whole host of accountants and regulators and more
    regulators than I can count on one hand that overlook our
    shoulders each and every day. So I think banks generally wake
    up every day and try to do the right thing, and then we have a
    whole host of people sitting around our circle ensuring we are
    doing the right thing.
        Mr. Lawler. Mrs. Castilla, thoughts?
        Mrs. Castilla. Yes, sir. I think that this is a really
    difficult policing job that we are going to be giving
    regulators. We do not want regulators looking over our
    shoulders every day to see if we are doing the right thing. We
    certainly do not want to ignore if there is going to be
    transitions of utilizing the accounts inappropriately.
        Mr. Lawler. Appreciate it.
        I yield back the remainder of my time.
        Mr. Downing. The gentleman yields.
        The gentleman from Tennessee, Mr. Ogles, is now recognized
    for 5 minutes.
        Mr. Ogles. Thank you, Mr. Chairman.
        Thank you to the panelists for being here.
        This is an important topic. I do think anything that we do
    should be data-driven. I mean, I will quote Reagan. You know, I
    think the scariest phrase in the English language is, ``I'm
    from the government, and I'm here to help.'' I think sometimes
    we tend to overreact and overregulate and make a problem
    otherwise worse. So, that being said, I think caution--a
    cautious approach in trying to understand those unintended
    consequences are incredibly important.
        You know, the goal of helping community banks is a laudable
    one, but an analysis is needed, to my point, to ensure any
    increase does, in fact, help community banks. If the goal is
    indeed to support community banks, then the inclusion of
    regionals and super-regionals is outside the scope and
    potentially counter to the goal.
        Mrs. Castilla, I know you have answered this question, but
    I just want to emphasize: During the deposit flight of SVB, did
    you experience deposit flight?
        Mrs. Castilla. I did not. I experienced deposit
    acquisition.
        Mr. Ogles. Then, do you believe an increase in deposit
    insurance will help community banks?
        Mrs. Castilla. It will help some that have exposure, some
    non-interest-bearing accounts but for most community banks,
    from what I hear from my peers, no, it will not.
        Mr. Ogles. To kind of target something that you just said,
    the banks have exposure. That is a management issue, is it not?
        Mrs. Castilla. That is. Whenever we see high exposures to
    uninsured deposits, that is a decision that we make. There are
    plenty of marketplace tools to fully cover a customer's
    exposure if they are uninsured.
        Mr. Ogles. Mrs. Castilla, staying with you, when asked
    about the potential for moral hazard this proposal could
    potentially create, you said in a recent op-ed that raising the
    coverage cap would invite moral hazard. You mentioned that such
    behavior would distort competition and weaken the discipline
    that deposit insurance is meant to preserve.
        Could you elaborate and explain that?
        Mrs. Castilla. Yes. The current market tools exclude
    troubled financial institutions, those with capital adequacy,
    asset quality, management, earnings, liquidity, and sensitivity
    (CAMELS) ratings 4 and 5. They are frozen in their
    participation from Federal Home Loan Bank letters or credit
    pledging, lines of credit, as well as any participation in
    reciprocal deposits.
        Mr. Ogles. Yes, ma'am.
        Should community banking institutions like credit unions
    have a differentiated approach to premiums or oversight given
    their typically lower risk profiles and cooperative ownership
    structures?
        Mrs. Castilla?
        Mrs. Castilla. I do not believe we need differentiation
    between institutions. I think we need a standardized system
    throughout the economy.
        Mr. Ogles. Then coming right back at you----
        Mrs. Castilla. Yes, sir.
        Mr. Ogles [continuing]. in your experience as a community
    banker, do you regularly observe small-business clients with
    deposit accounts in the range of $10 million? Do you regularly
    hear from small businesses that need $10 million in deposit
    coverage?
        Mrs. Castilla. There is--there are--we have a large oil and
    gas industry in Oklahoma. There are fluctuations in accounts.
    We are able to use reciprocal deposits and sweeps so that they
    are able to turn interest whenever they have those large
    balances.
        Mr. Ogles. So you have the solution to the issue.
        Mrs. Castilla. Yes, sir.
        Mr. Ogles. Mr. Norquist, in a recent op-ed in The Hill--
    hello, by the way--you said, ``Every dollar spent on premiums
    to the FDIC is a dollar not invested in economic growth.'' You
    stated, ``The estimated costs are huge: The FDIC would need to
    raise more than $10 billion from banks immediately and would
    take more than $1 billion in premiums out of the banking system
    annually.''
        Do you want to expand your thoughts? We have about a
    minute-40 to have the back-and-forth.
        Mr. Norquist. Okay.
        Well, earlier, I said the FDIC taking money from one
    business and giving it to another is not a tax. Try not paying
    it. Okay? It is a tax. It is mandatory. You do not get a choice
    and so raising taxes always comes out of all the other things
    you might do, like be able to--anyway. It is a cost that is
    imposed on the people who are investing in that bank--
        Mr. Ogles. Yes, sir.
        Mr. Norquist [continuing]. Ultimately, they pay it.
        Mr. Ogles. Mr. Meuser kind of asked you in his--he ran out
    of time, talking about, so what are the solutions? If this is
    not the right approach, Mr. Norquist, what would you propose?
    If we gave you the pen, gave you the pad, and said, ``Fix it,''
    what would you do?
        Mr. Norquist. Well, first, I would reduce some of the
    barriers that you have to allowing all of the various
    alternatives, which some people have poo-pooed here, but which
    are private-sector voluntary agreements, where the market says
    there are different ways to do this, both insurance--in my
    written testimony, there are examples from various States where
    they have done that.
        Massachusetts has set up a fund that is voluntary and has
    been operating since the 1930s. It does not have to be
    mandatory. It does not have to be the Federal Government. It
    does not have to be this big.
        Mr. Ogles. Yes, sir.
        I just want to underscore, Mr. Chairman, that as we--why
    this hearing is so important. You have different banks,
    different sizes, different regions, different asset and
    exposure allocations. So we need to be careful trying to come
    up with a one-size-fits-all. Perhaps, whether it is a weighted
    or--however we land this plane--but it is important. I think it
    is an important conversation, and I respect and appreciate all
    of your opinions.
        What I really wanted to do is emphasize that this is a very
    complex issue. You mentioned the S&L crisis. You know, what
    they did back then did not fix the problem. One would argue
    that it made it worse and we have to be careful as we move
    forward.
        Thank you, Mr. Chairman. I yield back.
        Mr. Downing. The gentleman yields.
        The gentlewoman from Texas, Ms. De La Cruz, is now
    recognized for 5 minutes.
        Ms. De La Cruz. Thank you, Chairman.
        Thank you to the witnesses today. We are almost at the end
    of this hearing, and I greatly appreciate your time and
    sometimes repetitive responses, but it is important that each
    of our districts hears our clip of exactly how this affects
    them in their communities.
        I represent and have the honor of humbly representing deep
    south Texas, where my area is largely rural, and so small
    community banks are the backbone of what helps us thrive. My
    district is largely Hispanic, where small businesses are
    important and where funding those first-time business owners,
    like myself, are very, very important.
        I understand that this is such an important conversation.
    As I have listened throughout the day to your thoughts and your
    responses, I can see that there is a diversity of suggestions,
    that some conflict and some not so much. This tells me that we
    need to keep talking about this, but, more importantly, we need
    to find a solution immediately, because everybody is affected,
    from small banks to our large institutional banks.
        I am pleased that all of you are here, but my fellow Texan,
    Mr. Furlow, thank you for being with us today. We do know each
    other from having ongoing conversations when it comes to
    community lending.
        So I would like to bring the perspective of the banking
    industry from Texas to the national stage. Mr. Furlow, can you
    explain how a TAG program or a deposit increase would have and
    could have helped during the 2023 SVB and Signature Bank
    failures?
        Mr. Furlow. Yes, ma'am. Our two-step proposal that we have
    with six other States is all about looking at 2023, dissecting
    that, and working our way through to ensure that we address
    those conditions that were taking place.
        In south Texas, as you mentioned, our community banks are
    absolutely an integral part of the lifeblood of the economy. In
    2023, when we had a systemic issue, through no fault of their
    own, our community banks were impacted and our proposal about
    having TAG is to do two things. Number one is to ensure that
    there is a backstop that is in place today that we can quickly
    implement in a non-bureaucratic way so that banks of every size
    and wherever a depositor chooses to bank, that they are safe,
    for a brief amount of time so that we do not get into the
    issues of moral hazard. So that is number one. That is the
    first step.
        The second step is to thoughtfully consider all of the
    issues that we have talked about today, to include where should
    the thresholds be. Because we need to know and understand
    simple questions: Number one, what are we trying to achieve
    through increasing thresholds? Number two, who is going to pay
    and, number three, how much?
        Those are all basic questions that need to be answered in
    all of these discussions, but, as you have seen today, there is
    not agreement, there is not consensus of it. If that is the
    case, it makes the argument for ensuring that we have a TAG
    program for emergencies, for systemic risk on the front end,
    while we can work through these issues and gain consensus.
        Ms. De La Cruz. So, as a small-business owner myself, I
    received my first business loan from a community bank, a
    community banker that knew me, Monica, the individual, and the
    integrity in which I was going to run my business and, thus,
    repay the loan.
        So it sounds like--and I would like to acknowledge Mrs.
    Castilla. Congratulations--you go, girl--for having your bank
    and being the leader, female-owned, a businesswoman and that of
    a community bank. I applaud you for this effort and for your
    success.
        You have said over and over again how, in these really
    trying moments, your bank held the line, and you did not have
    some of the effects that SVB banks and other small banks may
    have incurred during this troubling bank time.
        So, I am always protective of our community banks because I
    know how they helped me personally and helped other Hispanic
    small-business owners in south Texas.
        So I will write my question to you, and I hope that you
    will answer. Thank you.
        Ms. De La Cruz. I yield back.
        Mr. Downing. The gentlewoman yields.
        The gentleman from Texas, Mr. Gonzalez, is now recognized 5
    minutes.
        Mr. Gonzalez. Thank you.
        Thank you, Mr. Furlow, for being here. Great to see you. I
    have a just few brief questions for you.
        Mr. Furlow, does a one-size-fits-all increase in insurance
    coverage risk amplifying concentration at the largest
    institutions, rather than supporting relationship-based banking
    in communities like those in south Texas and other banking
    deserts, if you will, across the State and across the country?
        Mr. Furlow. Congressman, that is what this discussion is
    all about.
        You know, as I consider what full-scale modernization
    should look like, if you all are familiar a little bit with
    liquid dynamics and a tanker truck, there--they are essential--
    there are these baffles that stand in between so you do not
    have slosh across the entire vehicle that makes it unstable.
        So we need to look at how we approach the future of deposit
    insurance and so many of them are here today, but we just do
    not know.
        To ultimately answer your question, we need to ask what the
    future looks like. It is not 1933. We have had discussions
    about technology and advancement in payments and these types of
    things. All of that needs to be considered.
        In the meantime, we have to have a backstop.
        Mr. Gonzalez. Yes.
        Mr. Furlow. We cannot have our community banks in south
    Texas, where you and Congresswoman De La Cruz--their small
    businesses are so dependent on community banks. In 2023, it was
    not fair that they did not receive the same type of coverage--
    --
        Mr. Gonzalez. That is right.
        Mr. Furlow [continuing]. even though they paid premiums.
        Mr. Gonzalez. That is right. I am especially concerned
    about community banks and regional banks.
        My next question is for Mrs. Castilla.
        My concern is that even well-intentioned deposit insurance
    reforms could unintentionally harm people in banking deserts,
    as I mentioned, in places like where I represent and other
    places around the region and working Americans, who often have
    under $1,500 in their accounts.
        Rising assessment payments and compliance costs may push
    many smaller institutions to raise fees, cut services, or
    increase account minimums--a lot of it that is already
    happening--effectively pricing out working-class families
    already strained by policies like the Republican ``One Big Ugly
    Bill'' and recent funding bill that failed to extend the
    Affordable Care Act (ACA) tax credit, which will make
    healthcare unaffordable for nearly 130,000 south Texans. When
    that happens, people do not stop needing financial services.
    They are turning to higher-cost alternatives that are not FDIC-
    insured.
        The question is, what safeguards can we put in place to
    ensure that deposit insurance reform does not increase costs
    for working families and underbank them and push them away from
    a regulated banking system that has been so effective for so
    long?
        Mrs. Castilla. This is a wonderful question. Thank you for
    asking it.
        I met and married a south Texan, so I just have to give a
    shout-out to----
        Mr. Gonzalez. All right.
        Mrs. Castilla [continuing]. a shout-out to south Texas who
    is in the room.
        This is what I see every day. I stood in my lobby, I talked
    with our consumers and our businesses, small businesses, and it
    is about that trusted relationship. So I would just be
    careful--and this is what I am scared of--that we might do
    something that hijacks that relationship so that we are leaning
    on more the government for trust rather than that trusted
    relationship that a community banker can provide.
        Mr. Gonzalez. Great. Thank you.
        I will have one question to the panel, and anyone can
    answer it.
        What are we doing to try to find a way, especially for
    community banks, to find ways to increase deposit coverage when
    it is just one or two or a couple that are depositing and they
    want to deposit a million or $2 million and there is just not
    enough coverage? What ideas are out there to give banks cover
    and allow people to feel comfortable making larger deposits?
        Mrs. Castilla. Yes, sir. I do this every day. So, if
    someone has increased--if they have a deposit that is over the
    FDIC-insured amount, our team, our tellers, our personal
    bankers know that we have tools available that we will
    proactively offer if they want to have full coverage. We do
    this with nonprofits, and we do it with less sophisticated
    small businesses and more sophisticated businesses.
        So there are tools in place in the marketplace that allow
    us to maximize deposit insurance so that we can make that--
    even, we are educating what deposit insurance is, because a lot
    of my customers do not even understand that exists, first of
    all, and then maximizing to really show the strength----
        Mr. Gonzalez. Right.
        Mrs. Castilla [continuing]. of the----
        Mr. Gonzalez. Folks who are making larger deposits do
    understand very well and are just diversifying through many
    banks. You know, I know some folks that they bank with 10 local
    community banks in a small town because of the concern.
        Thank you for being here. I thank all of you. I thank the
    panel. This is a very important topic, and I hope we continue
    working on it.
        Thank you.
        Mr. Downing. The gentleman yields.
        The gentleman from Wisconsin, Mr. Fitzgerald, is now
    recognized for 5 minutes.
        Mr. Fitzgerald. Thank you all for being here. I know it is
    a long morning, now afternoon, but--and I am trying not to be
    redundant but let me start with Mr. Furlow.
        I know there has been discussion about moral hazard before.
    Can you just--I mean, there is a relationship between creating
    moral hazard or weakening, kind of, the market discipline,
    which is kind of what we were talking about. How do you keep,
    kind of, both of those in balance, would you say, just to make
    banks and depositors prudent, right, in the way they make those
    decisions?
        Mr. Furlow. Yes, and that is why this decision that we are
    having over where the threshold should be is so important.
    Again, it is not agreed to.
        One of the things that we did when we made our TAG proposal
    was address a concern that was expressed by those of you in the
    Congress. When we were in the middle of that crisis, we were
    asking for a TAG-like capability, and we kept hearing over and
    over again, ``Well, what about moral hazard?''
        So we have to design a system that is balanced. It has to
    address issues such as moral hazard. Where that needs to be,
    that is the discussion and until that time, we need a backstop.
        Mr. Fitzgerald. Very good.
        Mr. Norquist, I was so glad to see that you were on the
    panel. Can you just talk a little bit about how the coverage
    that is created interacts, kind of, with the broader regulatory
    framework?
        Would increasing those insurance limits--it kind of focuses
    in on how the Federal Government is involved in the overall
    oversight. I think there are a lot of us here today that are--
    when you hear, kind of, that regulatory framework, it is
    overarching, right?
        Mr. Norquist. Banking is one of the most highly regulated
    industries we have, and it has periodic problems, which
    suggests that too much government does not fix everything. Now
    that we have pointed out some problems, people think more
    government would do the trick. I am not sure that history looks
    kindly on that analysis.
        We started with a $2,500 guarantee, and then $5,000, and
    then up, up, up, up----
        Mr. Fitzgerald. Right.
        Mr. Norquist [continuing]. and now we are talking about
    $250,000, up to $10 million. Increasing those is not
    necessarily a good idea and raises real questions that we have
    seen directly from the $100,000--jump up to $100,000, what that
    did to the savings and loan industry and why it allowed people
    to take risks that they should not have or invest in their
    friends' things or to the local union stuff that they wanted,
    and they ended up ruining a lot of people's lives and creating
    tremendous damage because of the government guarantee and
    implicit government guarantees also can cause problems. We need
    to be clear on what the government is not doing as well as what
    it threatens to do.
        Mr. Fitzgerald. Very good. Thank you.
        Mrs. Castilla, reciprocal deposits are a means by which a
    bank can insure at least a portion of the deposits in the
    customers' respective deposit accounts above the FDIC's
    insurance coverage limit.
        So, given your experience leading a community bank through
    challenging times, how do reciprocal deposit arrangements help
    smaller banks manage liquidity and serve business customers?
        Mrs. Castilla. Yes, so I used to sit with customers, and we
    would go through call reports to see where they could place
    their $250,000 around the community and have it safe.
    Reciprocal deposits allow us to have a technology platform
    where we can do this more automated and that they can have one
    entry point with me to be able to access multiple banks. So
    they have this trusted relationship with their banker, and they
    are able to identify which banks they would like to exclude.
        The great thing, too, about the reciprocal network is it
    automatically freezes out 4-and 5-rated CAMELS-rated banks, so
    troubled institutions cannot go there to raise more funds,
    going to the moral hazard issues, where if you have FDIC
    insurance, you could potentially have increasing exposures at
    troubled institutions and increased exposure to the DIF if
    there is a failure.
        So I am able to use it--there is really not an amount that
    I cannot handle. I can one-way sell. If I cannot ingest all the
    deposits onto my own balance sheet, I can send that out just
    one-way, so it is not reciprocal. It just goes one-way out to
    the banking community, and then they are able to use that
    liquidity for their asset deployment.
        Mr. Fitzgerald. Is there anything we should be doing that
    could help in your effort and the way that you handle those
    solutions?
        Mrs. Castilla. It is a great question. I believe the
    reciprocal bill that came that actually allowed me to have more
    reciprocal access without it counting as brokered deposits is
    exceptionally helpful. Because these are organic deposits that
    I source that I am able to feed into the system, and having
    that lift to the brokered deposit level, the 20 percent of my
    assets, was a huge help for me and other community banks.
        Mr. Fitzgerald. Thank you so much.
        I yield back, Chairman.
        Mr. Downing. The gentleman yields.
        I now recognize myself, the gentleman from Montana, for 5
    minutes.
        Any reforms to deposit insurance should be well-thought-out
    and take into account a range of views. So I really appreciate
    that we are having this hearing here today.
        I represent Montana's Second Congressional District, which
    is the largest congressional district by land mass after
    Alaska.
        Now, banks in rural areas are some of the smallest in the
    country, but I am particularly concerned about their added
    costs in the long run with any potential reforms.
        I am going to start with Mr. Norquist.
        It is good to see you. It has been a while.
        Is there actually evidence that our current system and
    limit for deposit insurance coverage is insufficient for
    protecting customer deposits?
        Mr. Norquist. I do not think you can make that case. What
    you saw recently, some of the failures of Silicon Valley, the
    people--the government guys who were supposed to be regulating
    it saw the problem, highlighted it, and it was not acted on. It
    was not a question of that there was not enough insurance.
        Mr. Downing. Thank you.
        Let me move on to Mrs. Castilla.
        You know, one of the subjects of debate about deposit
    insurance is its costs. Most often this is focused on the costs
    of increased assessments on banks. Some have advocated for a
    policy of exempting small banks from any special assessments
    needed to finance the Deposit Insurance Fund to cover newly
    insured deposits if the limit is raised, but only for 10 years.
        So will such exemptions truly shield small banks like yours
    from the cost of increased assessments in the long term?
        Mrs. Castilla. I do not believe so. Even in the 10-year
    period, those are a lot of words to digest to see that I am not
    going to get tossed during that 10-year period.
        So I do think that if there is a failure or if it gets
    squeezed and we subsidize paid-in assessments to subsidize the
    costs associated with this increase, then effectively I am
    paying for it.
        Mr. Downing. So I assume a roughly $400 million community
    bank probably does not have a lot of customers with $10 million
    in their checking accounts. Just assuming.
        Mrs. Castilla. Sir, you would be correct. I have customers
    with that account, but I pay them interest. So I made----
        Mr. Downing. Right.
        Mrs. Castilla [continuing]. sure that they have their
    insurance and that I pay them interest for that money.
        Mr. Downing. So, despite this 10-year exemption, how could
    smaller banks like yours still end up paying for someone else's
    lunch?
        Mrs. Castilla. Yes. So the way that I have seen this bill
    and whenever someone has explained to me how it is going to be
    paid for is this buy-now-pay-later concept. So it also squeezes
    in that Deposit Insurance Fund number very close to that 135,
    where you are using money that we have already paid in to be
    able to subsidize the cost of that.
        You are also not fully realizing, through this manipulation
    of funding math, being able to say this is truly the
    liabilities that were exposed. They are booking all of that
    insurance real-time right from day one but then paying for it
    for 10 years, which does not make a lot of sense to me.
        If there is a failure during that timeframe, the DIF will
    not be able to handle that type of failure loss, and I will be
    exposed for a special assessment, as well as other community
    banks.
        Mr. Downing. Thank you.
        As a small-government conservative, I always prefer
    private-market options over Federal Government solutions.
        So, staying with you, Mrs. Castilla, are there any other
    private-market alternatives to Federal deposit insurance
    coverage that have not been discussed today that Congress
    should take a look at?
        Mrs. Castilla. The only thing that I would say is that
    there are multiple reciprocal networks, so there is competition
    in that space and that is evolving even more so over time. I
    get called on repeatedly for bank coalitions that are showing
    that there are ways to share our deposit coverage, to split our
    customer accounts to one another, and then bring out their--be
    able to reciprocate with other banks. I am sure that there are
    others that I do not know about.
        Mr. Downing. Yes.
        Well, I thank all the witnesses for being here. I know this
    has been a long hearing so far, but we are getting to the end.
    I yield my time now and the gentleman from South Carolina, Mr.
    Timmons, is now recognized for 5 minutes.
        Mr. Timmons. Thank you, Mr. Chairman.
        Thank you to the witnesses for being with us today.
        Now that operations have returned to normal, I am pleased
    that the chairman and this committee are turning our attention
    to the future of deposit insurance and to the role the American
    taxpayer may need to play in maintaining confidence in the
    financial system of the United States.
        This is an issue that generates strong views in my
    district, and I regularly hear from constituents who view
    recent proposals both favorably as well as those who urge
    caution.
        For me, understanding the appropriate deposit insurance
    framework begins with having reliable and comprehensive data
    from financial institutions of every size. Only with accurate
    information can we form a clear picture of the realities of
    today's financial landscape.
        As technology continues to evolve, we must use it to
    improve our understanding, as Congress examines the programs
    administered by the FDIC.
        Mrs. Castilla, based on your work, do you believe we
    currently have sufficient publicly available data to justify
    major changes to the deposit insurance framework?
        Mrs. Castilla. No.
        Mr. Timmons. Simple enough.
        If the data set is as incomplete as both you and I believe,
    what specific information should Congress require from
    regulators and financial institutions in order to properly
    assess both the nature of the problem and the potential effects
    of any proposed reforms?
        Mrs. Castilla. We really have not seen good data, even how
    deposits are flowing in the now, to substantiate that this is
    even needed, to be able to dig further into the data.
        So I think we first need to see, like, is there a problem,
    or are we just looking for the data for the solution? So I
    think that, really, documenting what the problem is is very
    important, and the data is available for that.
        Mr. Timmons. Thank you for that.
        Building on your response, I would like to turn the
    question of whether Congress should move forward at this
    moment.
        On the surface, we know that approximately 99 percent of
    the 816 million depository accounts in the United States are
    fully insured under the current framework. That is a notable
    figure in today's financial environment.
        At the same time, the proposals before us should raise
    complex and nuanced issues. With the data set as limited as it
    currently is, we have raised concerns that changing the deposit
    insurance framework now could lead us to address problems that
    are not yet fully understood or could cause us to overlook
    vulnerabilities that the available data has not yet revealed.
        Mr. Norquist, based on the information available today, do
    you believe there is clear evidence of a systemic failure in
    the current deposit insurance structure? Or are the concerns
    being raised more reflective of isolated events rather than a
    broader structural weakness?
        Mr. Norquist. Well, I think the argument for expanding it
    does not make sense. The argument for making sure that other
    alternatives--and this was discussed--both private insurance
    and the other mechanisms, are important.
        Every time we tax one part of an industry--and now we are
    going into the business of taxing one set of businesses to
    subsidize another set--that ends up with all sorts of political
    problems, economic problems. There is no end to it. People who
    were left out of the chopping block in the first 10 years are
    right on the chopping block probably 5 years from now.
        I mean, this moving in the direction of more government
    subsidy and more government guarantees, rather than trying to
    figure out what do we do to limit the cost of government inside
    this and government regulations--this is a wildly regulated
    industry, banks and that causes some of the problems. We need
    to be looking through what do not the Federal Government and
    the States need to do in the regulatory costs that they impose.
        Mr. Timmons. We definitely need to streamline regulation at
    all levels.
        If the concerns we are seeing are primarily the result of
    isolated events rather than a systemic failure, what additional
    indicators or developments would you need to see before
    concluding that broader reforms to the deposit insurance
    framework are warranted?
        Mr. Norquist?
        Mr. Norquist. Well, I think there are arguments for
    reforming it, by reducing the amount of costs that you put on
    people and allowing more--again, more private alternatives to
    this.
        We know that from the data today. We have seen, when the
    amount of money that was covered went up, we had the S&L crisis
    that flew directly from fixing an earlier--an assertion of an
    earlier problem.
        When the government gets more involved in something, it
    does not necessarily make it better and does not have a very
    good track record of handling that. The industry that gets into
    bed with the Federal Government is going to find that this was
    not the place they wanted to be.
        Mr. Timmons. Thank you for that.
        Mr. Chairman, I yield back.
        Chairman Hill [presiding]. The gentleman yields back.
        We welcome the gentleman from New York, Mr. Garbarino, who
    is our chairman of the House Homeland Security Committee.
        Welcome. You have 5 minutes.
        Mr. Garbarino. Thank you, Chairman.
        Thank you to all the witnesses for being here today.
        I am a little out of breath. I had to run up the stairs. I
    should be in better shape. You do not have to run on a golf
    course.
        Deposit insurance is a vital component of our banking
    system. It provides security, peace of mind, and financial
    stability for Americans participating in our financial
    institutions, while also promoting stable liquidity for banks
    to provide additional credit to individuals and businesses.
        Conversations between legislators and relevant stakeholders
    have debated the merits and feasibility of increasing the
    $250,000 deposit insurance coverage per depositor, including
    the Hagerty-Alsobrooks bill in the Senate that increases the
    coverage threshold to $10 million.
        Mr. Ryan, can you give us some examples of the types of
    businesses that maintain a $10 million balance in an operating
    account?
        Mr. Ryan. Yes. I think the easiest examples to really
    understand are really some of our largest employers. Even in a
    small town like Evansville, Indiana, it would be our
    universities and our hospitals who routinely have those types
    of balances in the multimillion-dollar category for payrolls
    and to buy supplies.
        Mr. Garbarino. Two thousand and twenty-three not only
    brought about the failure of SVB but also of the New York-based
    Signature Bank. We all know SVB failed because of management
    and regulatory issues.
        Mrs. Castilla, had the Hagerty-Alsobrooks bill or any other
    solutions we are considering today been in place, would
    Signature have remained solvent?
        Mrs. Castilla. I do not feel equipped to be able to answer
    that question. I am sorry. That is outside my area of
    expertise.
        Mr. Garbarino. Is there anybody who would like to answer
    that question?
        Mr. Anderson. Now, based on the regulatory postmortem
    reports, one of the main reasons why Signature Bank failed was
    because of a mismatch on its balance sheet for long-term
    securities. So, if there was an increase in coverage for
    deposit insurance, that more likely than not would not have
    saved the bank.
        Mr. Garbarino. Thank you.
        I know that there have been arguments made that deposit
    insurance legislation is meant to level the playing field.
        Mr. Furlow, by increasing the threshold to something like
    $10 million, are we overcorrecting, or is the jump from
    $250,000 to $10 million justified?
        Mr. Furlow. Well, back to 2023, the question at the time
    was, what should the number be? Should it be half a million?
    Should it be 2 million? But we were nowhere near $10 million
    and what are the implications of that jump up to $10 million? I
    do not think we know. I do not think we have the complete data.
        Look, I am open to exploring what the number needs to be.
    If it needs to be at that number, so be it but we need to have
    some data. We need to know who is going to pay, how much they
    are going to pay. It cannot just be that we bought the washing
    machine, we know we can pay for it over 10 years. It is like,
    okay, well, how much does a washing machine cost, and what do I
    have to pay every month for it?
        So we need to look at this. Again, we are very open to any
    range of ways to increase the threshold. We should look at
    indexing within the context of regulatory reform, right? That
    is another option that this committee can look at.
        If we do not address the issue of being ready for a
    systemic crisis at any moment, this industry remains at risk,
    and we have been since 2023.
        Mr. Garbarino. Is the data available? Like, I mean, you
    said we--is it there and we just have not looked at it? Or do
    we need to really----
        Mr. Furlow. Again, as this hearing has pointed out and as
    the Senate hearing pointed out, no.
        Mr. Garbarino. Mr. Ryan, did you want to respond to that?
        Mr. Ryan. I would just add, this is not a theoretical
    conversation, right? This was a real crisis the country faced
    in 2023. So action is required here in order not to face
    another one. In the last 5 years, we faced two of these.
        I would just recall Acting Chairman Hill's testimony in his
    confirmation hearing that he does not believe there is a
    substantial increase required for banks to pay for this
    increased insurance. So I assume he has lots of data, I assume
    he has a pretty sophisticated set of analysis behind him, and
    his own analysis suggests there is not a large increase in
    cost.
        Mr. Garbarino. Yes. I agree. I think there could be
    movement here. I just--I am just--the $10 million seems very--
    it seems a lot.
        Mrs. Castilla. I think we are missing a lot of data about
    what the problem is. If the problem is a systemic issue that we
    need to rectify, then maybe a temporary TAG order is in order
    versus having the insurance, but I think we are really missing
    the data as to pointing to what is the problem we are trying to
    solve.
        Mr. Garbarino. Okay.
        All right. I appreciate all you being here today.
        I thank you, Mr. Chairman, for allowing me to ask some
    questions, and I yield back.
        Chairman Hill. The gentleman yields back.
        The chair recognizes the gentleman from New Jersey, Mr.
    Gottheimer.
        You are recognized for 5 minutes.
        Mr. Gottheimer. Thank you, Mr. Chairman. I appreciate it.
        Mr. Norquist, as you know, banks are required to pay
    premiums to the FDIC. In your recent op-ed, you pointed out
    that the FDIC would need to raise more than $10 billion from
    banks immediately and would take more than a billion from banks
    annually to fund the Senators' proposed increase deposit
    insurance limit.
        How would this proposed policy change impact economic
    growth and how do you see consumers being affected by banks
    paying more for premiums?
        Mr. Norquist. Well, any tax on any industry takes resources
    out of that and this will hurt people who invest in banks and
    people who own banks and banks that are trying to make loans.
    It takes resources out of what they would be doing as bankers.
        Mr. Gottheimer. So it would affect consumers, right?
    Obviously, it would get----
        Mr. Norquist. Yes.
        Mr. Gottheimer [continuing]. passed along.
        Mr. Norquist. Yes. It affects consumers for all the same
    reasons, yes. When you tax businesses, you tax consumers.
        Mr. Gottheimer. Mrs. Castilla, since 2023, we have not seen
    any bank failures of the same scale as we had seen. However, we
    must continue to ensure the health of our banking system
    through effective oversight.
        We need to do everything we can to prevent another crisis.
    We especially need to make sure that our community banks are
    healthy and thriving, in my opinion, as they are vital for
    local economies and local lending.
        What smart guardrails should Congress consider the most
    effective in strengthening community banks like yours?
        Mrs. Castilla. Well, so many of the efforts that this
    committee has already undertaken will help community banking
    and deregulating, allowing us to deploy more capital into our
    communities as loans through lowering the community bank
    leverage ratio--whenever we look at the Bank Secrecy Act and
    the requirements there to report, that is 3 full-time people in
    my team of 70 dedicated to that effort.
        There are so many ways that you all are taking this effort,
    whether it is the reciprocal bill and ensuring that I can have
    and participate in the reciprocal market and not be penalized
    from a brokered deposit standpoint, and then holding regulators
    accountable. They should have seen the exposure and
    concentration of an SVB well ahead of time, and we could have
    averted that disaster if we would have had better regulatory
    oversight in that situation.
        Mr. Gottheimer. Have you seen a change? Do you think there
    is better regulatory oversight than there was a couple years
    ago?
        Mrs. Castilla. I would say that my regulatory oversight has
    been consistent and strong and in promoting the safety of my
    region. That has been my experience on the Federal Reserve and
    State banking department. We have an exceptional bank State
    commissioner who is deeply engaged with the health of his local
    community banks.
        Mr. Gottheimer. Do you find any conflict between the
    regulators that you have to deal with?
        Mrs. Castilla. Yes. Conflict is not bad, you know? That is
    what this panel is, too, about. It makes us all better and so
    debating and making sure that we fully understand the risk at
    hand and how we are managing it is part of the oversight
    responsibility.
        Mr. Gottheimer. Thank you.
        Mr. Ryan, in the aftermath of the 2008 financial crisis,
    which had an outsized impact on the mid-size regional banks, as
    you know, Congress passed Dodd-Frank, which enacted standards
    and oversight to help protect our financial system.
        It is critical that we continue these steps to bolster our
    regional banks' resilience. After SVB's collapse in 2023, I
    advocated for additional oversight measures and a responsible
    increase to the deposit limit.
        If there was an increase to deposit insurance and one that
    is reasonable, how would this impact regional banks' business
    practices?
        Mr. Ryan. I think it only goes to strengthen the resiliency
    and the diversity of our banking system, which is needed. We
    have seen the number of banks since the financial crisis be cut
    in half and I think, level the playing field by having higher
    FDIC insurance limits for all of those that are not implied to
    have unlimited guarantees--which is about 40 percent of our
    deposits are held by the G-SIBs today--I think that only
    further strengthens the resiliency of our great American
    banking system.
        Mr. Gottheimer. Do you think--the larger institutions
    obviously benefited at the time. Do you think that is still the
    case where the larger ones continue to benefit?
        Mr. Ryan. I think there is a common belief that there is an
    implied guarantee that these institutions will be supported in
    the event of a crisis or stress.
        Mr. Gottheimer. Right, and that has probably put even more
    stress on our regionals.
        Mr. Ryan. Correct.
        Mr. Gottheimer. Okay. Thanks.
        I yield back.
        Mr. Ryan. Thank you.
        Chairman Hill. The gentleman yields back.
        The gentleman from North Carolina, Mr. Moore, you are
    recognized for 5 minutes.
        Mr. Moore. Thank you, Mr. Chairman.
        You know, for the past 90 years, deposit insurance has
    protected depositors and helped maintain public confidence in
    our financial system.
        With the bank failures in 2023 that have been referenced
    already today, it revealed some new vulnerabilities in our
    system, largely driven by the speed at which deposits can now
    move. Nearly, I believe, $600 billion in deposits fled the
    system in a matter of weeks and that level of volatility is
    certainly something that the original deposit insurance
    framework was never designed to handle.
        Mr. Furlow, I will start with you.
        Technology has clearly changed the nature of bank runs and
    the stickiness of deposits. How should policymakers account for
    those changes as we consider potential reforms to the deposit
    insurance?
        Mr. Furlow. Congressman, thank you for the question.
        We need to make sure that we can move promptly whenever we
    see, particularly, systemic risk. You all saw what happened in
    2023. Now, earlier in the conversation today, we talked about
    the potential for AI. What happens if there are nefarious
    actors who decide to utilize AI to attack our economy?
        So we have to have the ability to move quickly. Again, why
    we are proposing this two-step process with an emergency TAG
    capability to put stability into the system immediately should
    we have some downturn.
        Mr. Moore. All right.
        I believe right now roughly 99 percent, I believe is the
    statistic that I am aware of, of all U.S. deposit accounts hold
    less than the $250,000, well within the FDIC coverage limits.
        What kinds of businesses--and this may have been touched on
    earlier--but what kinds of businesses and other account holders
    typically hold balances above the statutory insurance limit?
        Mr. Ryan, if you could take that one.
        Mr. Ryan. You know, the greatest example I can come up
    with, which tend to be some of our greatest employers,
    especially in Indiana, in rural parts of Indiana, are the
    hospital systems and the university systems. I mean, they
    routinely have multiple millions of dollars sitting in their
    account to handle payroll that happens and, obviously, supplies
    that are needed to buy.
        So this is not a theoretical argument. This is real, large
    employers who are vital to our communities who need this type
    of coverage.
        Mr. Moore. Okay.
        Let me ask you this. Same follow up on that, Mr. Ryan. I
    know that reciprocal deposits have given community and mid-size
    banks a tool to insure a portion of deposits above the FDIC's
    $250,000 insurance coverage limit.
        So how have the reciprocal deposit networks helped level
    the playing field for smaller and regional banks?
        Mr. Ryan. I do think there is a--it is a tool. Less than 1
    percent of our clients choose to use that tool. It adds
    complexity and cost somewhere around 12 to 15 basis points to
    seek that higher coverage out.
        I will say, it works during normal periods of time. It is
    not perfect and most businesses do not appreciate the
    complexity of having to have multiple relationships, multiple
    sets of accounts at these organizations.
        The last thing I would add, in times of stress or times of
    crisis, it is really hard to explain how these reciprocal
    networks work. I think, to the extent we keep pushing deposits
    toward these reciprocal networks, I think we are concentrating
    risk in sets of entities and organizations that we just do not
    know what is going to happen in a time of crisis.
        Mrs. Castilla. The key is to talk about these programs not
    in times of crisis. This should be part of everyday discussions
    with our customers, as their trusted advisor.
        Mr. Moore. Agreed.
        Let me ask you this question, Mrs. Castilla. What would be
    the real-world impact, if you will, of expanding, say, coverage
    for business accounts but not for individuals?
        Mrs. Castilla. So this is on non-interest-bearing accounts,
    and so you are really shifting a business from likely being an
    interest-bearing account with reciprocal deposits--which, our
    customers do not mind that there is some complexity there--to
    now not earning any interest on their account and they have 10-
    million-plus dollars in that account.
        Mechanically, it does not really work any differently. They
    have the same amount of coverage; they are just not earning
    interest. The bank is saving money because we are not having to
    pay the network the 12\1/2\ basis points.
        Mr. Moore. Very good.
        Mr. Norquist, I have to ask you a question. It has been a
    while. I am still getting used to seeing you without a beard.
    Every time, I just--you know. It is good to see you, sir, and I
    appreciate your longstanding friendship.
        I do have a question for you as well, and that is----
        Mr. Norquist. Sure.
        Mr. Moore [continuing]. you have advocated against raising
    insurance limits at all. From your perspective, what regulatory
    or supervisory reforms should be prioritized first before
    considering changing deposit insurance levels?
        Mr. Norquist. Well, in the case of Silicon Valley, the
    regulators did highlight things, but nothing was done there. So
    the failure was internal. The government had the information,
    did not act, and you had the failure.
        I would go through the regulations that had been put on
    most recently to, frankly, look at which ones ought to be taken
    off. Talk to all the various sized businesses. There had been
    some effort in 2018 to do some of that made some real progress.
        We have been larding up the regulations on the banking
    industry for a long time----
        Chairman Hill. The gentleman's time has expired.
        Mr. Moore. Thank you.
        I just want to say thank you, because this was a great
    panel here today, all of these folks.
        With that, I yield back, Mr. Chairman.
        Chairman Hill. Thank you, Mr. Moore.
        I want to thank our witnesses for their expertise, their
    great communications skills with all of our member engagement.
    I want to appreciate your testimony and sharing your time with
    us today.
        Without objection, all members will have 5 legislative days
    to submit additional written questions for the witnesses to the
    chair. The questions will be forwarded to the witnesses for
    their response.
        Witnesses, please respond no later than December 23--Merry
    Christmas--2025.

        [The information referred to can be found in the appendix.]

        Chairman Hill. This hearing is adjourned.

        [Whereupon, at 1:58 p.m., the committee was adjourned.]

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