Today, Kenneth Kelly, chairman and CEO of Detroit-based First Independence Bank and chair-elect of the American Bankers Association, will testify on behalf of ABA at a hearing of the Senate Banking Committee exploring perspectives on deposit insurance reform. In his testimony, Kelly outlined ABA’s perspective on how the deposit insurance system “could be modernized to reflect the needs of today’s depositors, banks and communities while promoting financial stability and a level playing field for banks of all sizes.”
“The deposit insurance system has served the nation well, and Americans appreciate the peace of mind they receive from having their hard-earned funds in an FDIC-insured bank,” Kelly said in his prepared testimony. “We recognize, however, that recent events have raised legitimate questions about whether the system can be improved to reflect the realities of banking today.”
Since the bank failures of March 2023, ABA has explored how to modernize the deposit insurance system, with a working group of more than 300 member banks discussing and debating potential options. Starting in January 2025, Kelly chaired a smaller ABA Task Force that developed a set of 10 recommended policy changes to bolster public confidence in the deposit insurance system and make it fairer, more transparent and better able to handle periods of stress in the future.
While Kelly noted that “the task force’s recommendations do not answer all the complex policy questions surrounding the deposit insurance framework,” he added that “these recommended changes would make the existing system more responsive in moments of financial stress, more transparent and fairer to the institutions participating in the system and the customers they serve. Importantly, we also believe these recommendations can win support from a wide range of stakeholders, including banks of all sizes.”
Read Kelly’s prepared testimony.
Additional Background
Below is a summary of the ABA Task Force’s recommendations on deposit insurance modernization:
Note: Some but not all of these recommendations would require legislative action in Congress.
Emergency Actions and Authority
- Congress should grant the FDIC preemptive approval to temporarily back deposits and/or other liabilities under a specified set of crisis conditions as it did during the pandemic. The goal would be to limit the risk of contagion;
- To improve transparency, ABA recommends that Congress require the FDIC to outline the specific considerations that warrant a systemic risk determination, as well as the methodology the agency will use to calculate any special assessment on banks after a failure.
Deposit Insurance Coverage, the Deposit Insurance Fund and Assessments
- ABA believes that some depositors may benefit from additional deposit insurance coverage, that such coverage could enhance financial stability, and that any increase should be empirically driven. ABA does not believe that there is currently enough publicly available data to recommend a specific increase in the coverage limit or fully understand the cost of any change. Accordingly, we call on the FDIC to expand its efforts to collect the data needed to identify options and help banks and policymakers understand the tradeoffs between those options. Once a limit is established it should be indexed to inflation;
- Next, ABA recommends that Congress and the FDIC reassess the size and structure of the Deposit Insurance Fund. The FDIC should also continue to use a risk-based approach when setting assessments; and
- Congress should make deposit insurance assessments tax deductible as they were prior to 2018;
- Lastly in this category, the FDIC should evaluate the costs and benefits of allowing banks to purchase targeted excess deposit insurance.
Bank Resolutions
- Congress should authorize the FDIC to broaden the “least cost” test when considering how to resolve failed banks;
- Congress should also authorize the FDIC to consider the cost of resolutions on communities and provide the FDIC with the power to balance the “least cost test” for community bank failures;
- To enhance fairness, the FDIC should open resolution-associated asset auctions to a more diverse group of investors;
- And finally, the FDIC should publicly release the resolution approaches it considered, and the estimated costs of each failure.