House panel debates FDIC resolution rules, deposit access and capital relief for community banks

Chairman Barr opened a House Financial Services subcommittee hearing on promoting the health of the banking sector, saying the panel would examine “promoting the health of the banking sector, reforming resolution and broadening funding access for long term resilience.”

The hearing brought testimony from bank executives, trade groups and policy researchers who urged Congress and the federal regulators to revise how failed banks are resolved, expand access to certain deposit types for community banks and recalibrate capital standards so that rules designed for very large, complex banks do not unduly burden smaller institutions.

Why it matters: Witnesses and members said the outcome of the debate could affect where deposits flow, how many institutions can compete for failed banks, and whether community and minority depository institutions can attract capital and deposits to fund lending in underserved communities.

The panel heard repeated calls to change the Federal Deposit Insurance Corporation's "least cost" bidding practices used in bank resolutions. Several witnesses, including Jim Baresi, a former deputy general counsel turned adviser, and Dori Wiley of Commerce Street Holdings, said the current process tends to favor the largest bidders and can exclude community or consortium bids even when smaller bidders could preserve local banking relationships. "It needs to be modified to enable smaller players to participate effectively in auctions," Baresi…