During a Wednesday Senate Banking Committee hearing, Senator Reverend Warnock addressed the growing concern of deposit flight from small community banks to larger Wall Street institutions

Senator Warnock highlighted the continued growth of big banks, while smaller community banks have seen a roughly 50% decline in the last few decades

Senator Reverend Warnock during the hearing: “Small businesses, in my view, should not be punished for the mistakes of failed bank executives”

Watch Senator Reverend Warnock at Wednesday’s hearing HERE

Washington, D.C. – Today, U.S. Senator Reverend Raphael Warnock (D-GA), a member of the Senate Banking Committee, highlighted the importance of small community banks and their impact on rural areas across Georgia and the United States. Over the last twenty years, such banks have seen a 50% drop, while larger Wall Street institutions have continued to grow. 

“We have seen over the last two decades about a 50% drop in the number of community banks, and at the same time, Wall Street banks have continued to make more and more and more money, getting bigger and bigger,” said Senator Warnock. “How should we ensure that small community banks – And let me be clear, I think there’s a role in the larger ecosystem for the big banks and small community banks. But clearly all the movement has been going in one direction.”

The hearing was held to evaluate perspectives on deposit insurance reform. Deposit insurance is a measure to protect bank depositors from losses caused by a bank’s inability to pay its debts when due.

“Small businesses, in my view, should not be punished for the mistakes of failed bank executives,” said Senator Warnock.

Senator Warnock has long advocated for smaller community banks and their support of small businesses and jobs in Georgia and across the country. The former chair of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, Senator Warnock, has spotlighted the important role of community financial institutions that provide financial support to underserved families, businesses, and non-profits.  

Watch the Senator’s full remarks and line of questioning HERE. 

See below the transcript of the key exchange between Senator Warnock and Kenneth Kelly, Chairman & CEO, First Independence Bank, and Bob Harrison, Chairman, President, and CEO, First Hawaiian Bank:

Senator Reverend Warnock (SRW): “During the spring 2023 banking crisis, many small businesses struggled simply to pay their employees and cover expenses, only because those businesses chose the wrong bank to keep their money safe. Small businesses, in my view, should not be punished for the mistakes of failed bank executives, and that’s why I’m glad this committee is looking at ways to reform deposit insurance. However, we should be careful not to place additional strains on our community banks, many of which serve populations and communities that giant Wall Street banks don’t. Mr. Kelly community banks in Georgia and across the country compete with big banks by knowing and investing in the communities they serve. Are you concerned about deposit flight to big banks, where small businesses rush to put their money in the biggest Wall Street banks because they’re nervous about keeping their money safe?”

Kenneth Kelly (KK): “Yes, Senator Warnock, thank you for the question. I will tell you whatever it’s called, if you look at what took place in 2023 there was inherent flight that was moving because of nervousness and anxiety within the business community. And so the efforts that we’re talking about today hopefully will bolster confidence and allow small businesses to feel more confident in putting their monies in the small businesses in the small towns in the state of Georgia.”

SRW: “In fact, we have seen over the last two decades about a 50% drop in the number of community banks, and at the same time, Wall Street banks have continued to make more and more and more money, getting bigger and bigger. How should we ensure that small community banks – And let me be clear, I think there’s a role in the larger ecosystem for the big banks and small community banks. But clearly all the movement has been going in one direction. – So how should we ensure that small community banks do not foot the bill for deposit insurance reform legislation?”

KK: “I think it has to be carefully considered. We also have to ensure that there is adequate regulation. Senator Warnock on this topic, regulation can run and cause our businesses to be challenged economically. And you see, really, in looking at what’s happening in the consolidation, a lot of that is economics. One issue I will bring up that’s probably not part of this topic is when you look at things that look like a bank, act like a bank, and can buy a bank, it should be taxed like a bank. And my point is, we have a lot of inequities across the system that we need to deal with. Taxation is one of those that will allow these small institutions to stay in small towns like Griffin, Georgia or Hahira, Georgia, that’s important to be sure that they become the lifeblood for economic prosperity in these small towns.”

SRW: “So this issue is further complicated by technology and other disruptors?”

KK: “Absolutely. I think partnerships, et cetera, are needed to help overcome those technological [challenges].”

SRW: “So we could see reform if we’re not careful in Congress, that creates further consolidation?”

KK: “That is a concern. I think there could be unintended consequences…”

SRW: “Thank you Mr. Keller. Mr. Harrison, how would a proposal to increase deposit insurance limits for business accounts help smaller community banks compete with big Wall Street?”

Bob Harrison (BH): “It really levels the playing field. Senator, thank you for the question, and that’s all we’re asking for is being able to compete on a level playing field. When we saw some of those deposits leave after Silicon Valley, not only did they not come back, but then that introduced the larger banks into our customer base, and so you’re fighting just to hold on to the customers you had and have serviced for many, many years. So by the higher deposit limit, knowing their operating account is safe, that you’d be able to protect that and prevent that from happening next time.

SRW: “Thank you very much. I think it’s so important for us to get this right and to remain focused on getting this done but getting it done right so that we don’t worsen the problem.”

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