U.S. House Financial Services Committee holds hearing on deposit rule alignment, FDIC resolution reform and community bank capital burdens

The U.S. House Financial Services Committee’s Subcommittee on Financial Institutions convened a hearing to examine reforms intended to support a healthier and more competitive banking sector, including for community banks. The discussion focused on the regulatory treatment of brokered, reciprocal and custodial deposits, the Federal Deposit Insurance Corporation’s (FDIC) resolution process, and whether existing capital frameworks are working as intended for smaller institutions. Subcommittee Chair Andy Barr argued that misaligned regulatory treatment of certain deposit types constrains well-managed smaller institutions’ ability to fund themselves and called for restrictions to be based on actual stability risks. Committee Chair French Hill highlighted efforts to improve the FDIC’s resolution process to maintain financial stability and protect taxpayers. Rep. William Timmons pointed to the community bank leverage ratio, created under S. 2155 to simplify capital requirements for low-risk community banks, noting that only about 41% of eligible banks have opted in. Witness recommendations included the American Bankers Association’s proposal to allow the FDIC to better balance the least cost test with community impact in community bank failures, including through resolution options that preserve essential local banking services, as well as calls for a more transparent and timely framework for bank merger reviews.