Testimony of Kenneth Kelly on Deposit Insurance Reform

Chairman Scott, Ranking Member Warren, and Members of the Committee, thank you for the opportunity to testify at today's hearing entitled: "Evaluating Perspectives on Deposit Insurance Reform." I am Kenneth Kelly, Chairman and CEO of Detroit-based First Independence Bank, a minority depository institution with nearly $700 million in assets. We have proudly served customers in Detroit for more than 50 years, and more recently opened two branches in Minneapolis. In addition to my role at the bank, I serve on the Federal Reserve Bank of Minneapolis’s Community Advisory Board. I am also Chair-elect of the American Bankers Association (ABA) and am testifying today in that capacity. The ABA is the voice of the nation's $25 trillion banking industry, which is composed of small, regional and large banks that together employ approximately 2.1 million people, safeguard $19.7 trillion in deposits and extend $13.1 trillion in loans.

The deposit insurance and resolution framework, which lies at the core of money and banking in the United States, is complex, multifaceted and foundational to our financial system and the U.S. economy. Created in 1933, deposit insurance, which is fully funded by banks, promotes financial stability by helping to prevent runs and stem contagion should depositors lose confidence in a single institution or the industry more broadly. Bank resolutions, which take place outside of the codified bankruptcy framework, help mitigate the costs of failures and ensure depositors have timely access to their funds. The Federal Deposit Insurance Corporation (FDIC), which oversees and manages deposit insurance and resolutions, is fully funded through assessments paid by banks, not taxpayers.

The current deposit insurance and resolution framework has served the nation well. The failure of Silicon Valley Bank (SVB) in March 2023 renewed questions about whether deposit insurance coverage levels are keeping pace with the needs of all depositors, and if, given the speed at which money moves today, the FDIC needs a more modern set of tools that allow swift action to manage and mitigate a modern stress event. Moreover, as the resolution of SVB unfolded, it became clear that a more robust and transparent process is needed around systemic risk determinations and the subsequent special assessments levied on banks. Importantly, no taxpayer funds were used in SVB's resolution. Instead, the costs were borne by the Deposit Insurance Fund (DIF), which is funded by bank assessments.

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