On July 24, FDIC Vice Chairman Travis Hill addressed changes at the FDIC during the past 18 months. Hill discussed challenges the Federal Reserve faced in providing bank liquidity due to banks’ unwillingness or inability to use the discount window. Hill also discussed how the FDIC had taken steps to address bank runs, fund FDIC receivership, and amend bank liquidity issues by proposing operational improvements like electronic funding requests and expanded hours of operation.

Hill noted that the FDIC would also consider a discount window prepositioning rule requiring banks to maintain a minimum ratio of cash plus discount window borrowing capacity to uninsured deposits, stating that this consideration aimed to remove the first-mover advantage that could spark a bank run. Another suggestion cited by Hill was incorporating discount window capacity into the liquidity coverage ratio.

Concerning the FDIC’s receivership funding, Hill described the scrutiny the FDIC faced due to the unprecedented borrowings from the Fed to fund recent receiverships and questions about the FDIC’s contingency funding plans. In response, Hill noted that the FDIC could have accessed more cash than the Treasury provided and, in the event the Treasury could not have provided more cash, the FDIC and Treasury could have devised a plan for the Treasury to redeem the FDIC’s securities for cash and, on the same day, issue new securities into the market. Hill also stated that the FDIC should have unfettered access to funds in the Deposit Insurance Fund.

Hill stated that the existing brokered deposits framework, established in 1989, was “no longer fit for purpose.” Changes in the deposit landscape and the emergence of new deposit arrangements have highlighted flaws in the current regime. There are concerns about its effectiveness in assessing risks and its impact on bank funding. Finally, Hill discussed how the Basel III Endgame proposal has been criticized for its lack of appreciation for real-world impacts. Calls for a re-proposal and concerns about the proposed operational risk and market risk frameworks have been raised.