Deposit insurance reform should remain focused on consumer protection and build confidence in the stability of the banking system, Thomas Fraser, chief executive of First Mutual Holding Co. in Lakewood, Ohio, told the Senate Banking Committee on Thursday. Fraser was one of three witnesses who testified before the committee. during a hearing on deposit insurance reform after the recent bank failures. In his remarks, the chief executive said that while proposals have been offered on moral hazard and who should bear the cost of bank failures, consumer protection and confidence must be “our main objectives” in reforming the system.

“It has become clear to me that there is a structural change taking place in banking and that there are a range of new risks emerging that did not exist in the financial crisis of 2008 and certainly did not exist in 1934… They are challenging the perimeter of traditional perceptions and mechanics of how our financial system works,” said Fraser. “It is imperative that banking policy adapt to these new risks, especially with respect to deposit insurance reforms.”

Among the risks Fraser identified were mobile technology and artificial intelligence tools that make depository bases more vulnerable; competition with non-bank money market funds that offer high rates without FDIC guarantees; and a growing number of shadow banks and fintechs offering bank-like services. At the same time, he said that any reform option should also take into account the unintended consequences of making policy changes. Fraser also said that if a bank were to end up in FDIC receivership, the resolution should consider long-term competitive mergers beyond low-cost and expedited resolutions.

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