Travis Hill FDIC chair confirmation hearing: Live coverage

FDIC chair-designate Travis Hill said that it's "at least possible" that after the 10-year phase in period outlined in the Hagerty bill to increase deposit insurance for noninterest bearing accounts that community banks won't have to pay additional assessment fees. 

But Hill also didn't commit to keeping assessment fees low for banks.The cost of increasing deposit insurance for noninterest bearing business accounts has alarmed some small bankers, who fear that assessments after the 10-year phase in period, during which time banks under $10 billion wouldn't have to pay increased assessments to the FDIC, wouldn't cover increased fees the next time a bank fails, or after the 10-year period. 

"There's a lot of uncertainty around any predictions that we might make in terms of the impact that the legislation would have," Hill said in response to a question from Sen. Angela Alsobrooks, D-Md., one of the legislation's cosponsors. "There's uncertainty first because we don't have data on how many uninsured deposits are above or below certain thresholds — other than the $250,000. The other piece that we don't know is what kind of behavioral change there might be in terms of funds moving from certain types of deposits to other types of deposits." 

Hill said that the FDIC expects that the Deposit Insurance Fund's reserve ratio over that 10-year period would grow at a much lower pace than it otherwise would, but that it would not decline. 

"Expanding deposit insurance has a mixed impact on potential resolution costs …like reducing run risk, things like that, and then also post-failure, expanding coverage increases the cost of liquidation," Hill said. "So the ceiling on the potential cost goes up, but the flip side is, it can make the failed institution more attractive to potential bidders, because insured deposits tend to have more franchise."

Sen. Katie Britt, R-Ala., used her questioning to focus on the FDIC's joint proposal with the OCC to tighten the "matters requiring attention" process. 

The proposal targets two main supervisory tools regulators use to flag and fix bank problems: enforcement actions under Section 8 of the Federal Deposit Insurance Act and Matters Requiring Attention. These tools help supervisors identify weaknesses in banks and require banks to take corrective action.

Britt highlighted the concerns raised in her letter with ten senators urging reform of the MRA framework, saying such tools should "be used intentionally to identify and resolve true financial stability risk, not to be used as a subjective supervisory tool or a check-the-box exercise."

Hill thanked Britt "for [her] leadership and support on this issue," adding that the goal of the proposal is to refocus supervision on genuine financial risks rather than procedural box-checking.

Hill explained that the proposal would "require that in order for weaknesses to satisfy either of those buckets, they would essentially need to be directly tied to a material financial harm which means a loss or impact to capital, earnings, liquidity … or have a material impact on the risk of the institution failing."

"So the proposal would not prevent examiners from being able to take proactive steps," Hill said. "But the intent of it is to make sure that the things that we're criticizing are things that are truly safety and soundness concerns."

Sen. Bill Hagerty, R-Tenn., one of the main sponsors of legislation to expand deposit insurance for business accounts, used time in questioning Federal Deposit Insurance Corp. Chair -designate Travis Hill to press for his bill that would expand noninterest-bearing account insurance to $10 million. 

"The biggest banks in America benefit from a perceived government guarantee that smaller institutions just don't possess," Hagerty said. "It's that perception that precipitated the type of run that we saw, and this perception of 'too big to fail' depository behavior poses a grave risk, in my view, to regional and community it's yet another threat to community banking system," he said, referring to the 2023 banking crisis. 

Hagerty's advocacy for this bill comes even as some community bankers say that the bill is unnecessary for them, and really benefits large and midsized regional banks the most. 

Hill seemed to support the idea of deposit insurance reform, but stopped short of endorsing the Hagerty bill in particular. 

"One of the big benefits of deposit insurance, from a public policy perspective, is it takes away the incentive for those depositors to run," Hill said. "So all else equal, an expansion of deposit insurance would create a more stable funding base where there would be a reduced incentive for depositors to run."

Senate Banking Committee ranking member Elizabeth Warren, D-Mass., pressed Federal Deposit Insurance Corp. Chair-designate Travis Hill over what she describes as  weakening big bank safeguards and slashing examiner staff even after recent bank failures exposed regulatory lapses leading up to bank failures in recent years.

"I want to talk about what's happened during the time that he has been at the FDIC," Warren said. "Acting Chairman Hill, you served as the FDIC policy director from 2019 to 2022, during your tenure, the FDIC weakened key big bank safeguards, which led to the second, third, and fourth largest bank failures in American history," referring to the March 2023 bank failures. 

She cited weak supervision as a major factor behind those collapses, pointing to "an understaffed bank examiner workforce at the FDIC," according to the FDIC's chief risk officer. After Signature Bank's failure, Warren noted, "the FDIC's chief risk officer found, 'Frequent vacancies and continuous turnover on the FDIC exam team for Signature, and more broadly, that an average of 40% of big bank exam positions in the FDIC New York office had been vacant or filled by temporary staff in the years prior.'" The agency's inspector general, she added, "cited similar staffing challenges in its review as one direct cause of the bank's collapse."

"Since you became acting chairman in January," Warren asked, "have you increased or decreased the number of bank examiners at the FDIC?"

Hill responded that regarding "the total number of examiners, we made small decreases on the safety and soundness side."

Warren further pressed Hill on reported rescissions of job offers to some 200 bank examiners and reports that the agency has reduced its workforce by 20% since the beginning of the year, and pointed out that the agency has not shared with the committee a detailed breakdown of those workforce reductions. 

"You refused to provide this committee with a breakdown of the staff reductions when my office requested them last April," Warren said. "So you don't get to come in here now and say, 'Oh, I didn't cut any of the people you would care about.' If you weren't cutting any of the people I cared about, you should have told me that last April."

Warren asked if Hill agreed with the former Republican FDIC officials that reforming the enhanced supplementary leverage ratio, a risk-blind capital charge for the nation's biggest banks, would decrease lending, increase the risk of failures, bailouts, and losses to the Deposit Insurance Fund.

Hill pushed back: "I would strongly disagree with that. The capital impact, in aggregate, at the parent company is less than 2%. The intent behind it is to return the leverage ratio [to being] a backstop."

But Warren countered that even the FDIC had acknowledged the risks. "Buried deep in the proposal, the agency says, quote, 'a reduction in required capital increases the size and likelihood of losses shifting from shareholders to creditors,' — that means depositors and the Deposit Insurance Fund — 'in the event of a failure, such losses may lead to additional spillovers and costs.' End quote."

"In other words," Warren said. "Your own report [predicts] more bank failures and more taxpayer bailouts."