The following is the transcript of an interview with Rep. Patrick McHenry, Repubican of North Carolina, that aired on "Face the Nation" on May 7, 2023.

MARGARET BRENNAN: And we turn now to the Chairman of the House Financial Services Committee, Patrick McHenry. Mr. Chairman, Good Morning. 

REP. PATRICK MCHENRY: Good morning. 

MARGARET BRENNAN: The- the Senator previewed some of your proposals here. So I want to talk to you in-depth about that, but just level set for us here, because we have the congressional leaders getting in the same room with the President Tuesday. You said in March, you've never been more pessimistic about negotiations. Where's your competence level today?

REP. MCHENRY: Instead of being at the depths of the ocean, I'm merely drowning. I mean, if that tells you that- so, my level of optimism is from complete and utter pessimism that anything can get done to some level of modest pessimism now. What's changed since that interview is that the House acted, we passed a debt ceiling increase with a Republican plan attached to it. It talks about growth--

MARGARET BRENNAN: Just barely. 

REP. MCHENRY: But we did. It's a narrow house, it's going to be a narrow vote. But we- we dealt with growth, we dealt with immediate spending and long-term savings. So, a balanced program here. Now, we've sent this over to the Senate. The President said, show us your plan, we've not only shown him the plan, we've passed a plan. The Senate can't do it, now with 43 senators saying we're not going to go along with the Schumer plan for a clean debt ceiling increase, the Biden plan. And now the Biden- President Biden has to come to the table for a negotiated solution. He needs to listen to his economic advisors, not his political advisors, and take this very seriously, given the late stage that we're currently at.

MARGARET BRENNAN: You were just referencing a letter that was signed on to by a number of senators, including Minority Leader McConnell, who seems to be throwing his weight behind the Speaker of the House. What does a bipartisan deal actually look like?

REP. MCHENRY: It looks a lot like the bill that we passed out of the House, it touches growth, it touches-- 

MARGARET BRENNAN: That's dead on arrival in the Senate, you know that.

REP. MCHENRY: Well, we sent a significant large bill, that- that brings down the cost of government by four and a half trillion dollars over the next decade. It's big, yes. But we sent growth, short-term caps deal on spending, so we can fund our government for the next two years without drama. And then long-term savings. So pairing of one, two and three, that's what a deal looks like. I've talked to a lot of senators, lot of Democrats and Republicans in the House and the Senate to try to see what a deal would look like. And at this stage of the game, the one key ingredient I don't have is what the administration would- would come to terms with. We have to have something that can pass, that addresses our fiscal house at a time where we have record inflation and record federal spending, and we need to have something that can both pass with Republicans and Democrats.

MARGARET BRENNAN: Exactly. It has to be bipartisan, and you acknowledged it's going to be likely a narrow vote in the House. With the vote you did get through, there were four Republicans against it. Two of them have said they will never vote to raise the debt ceiling, Tim Burchett and Andy Biggs. So compromise is where you have to get here, right? I mean, but- but--

REP. MCHENRY: You're saying this to remember the House that actually passed a debt ceiling increase, and a President who would not have a second meeting with the Speaker of the House. The first meeting was February 1st, we're 100 days past. Everyone knows in divided government, you have to negotiate, and the President says he will not negotiate. So the absurdity of the position the President's put himself in, where he is playing politics with the economy, is markedly different than previous debt ceiling increases, where Republicans have been viewed as a recalcitrance. We've actually done something, and the administration says we're not going to talk. 

MARGARET BRENNAN: The Treasury Secretary said today it's you all who are putting a gun to the head of the American economy. That is what she said. And she's talking about the fact that--

REP. MCHENRY: Hell of a statement on a day like today--

MARGARET BRENNAN: It is--

REP. MCHENRY: It shows that it's all about politics for this administration.

MARGARET BRENNAN: U.S. Treasuries are the bedrock of the financial system, you know that very well. So, don't you need to just say default is off the table?

REP. MCHENRY: And that's what we did by passing a plan. The President did not think we could pass a plan out of the House, so therefore, he said, it's a clean debt ceiling, or nothing. And so debt- a clean debt ceiling is now off the table with Republicans in the House and Senate saying time to negotiate between the Speaker and the President. That's all we're saying. The Speaker has not laid down a red line. Those- that's been done in previous iterations of the debt ceiling by Democrats and Republicans in the legislative branch. He didn't do that. There are no red lines other than the fact that we must address our fiscal house at a time where federal spending is up 40 percent from pre-COVID levels. I think it's a reasonable thing for us to do. And in fact, that's what the American people say, three out of four Americans say the President should negotiate with the Speaker to address our fiscal house.

MARGARET BRENNAN: I want to get to banking too, but just very quickly, is a short-term patch off the table? Short term lift of the debt ceiling?

REP. MCHENRY: I think everything's on the table at this point. The key thing that has to be in this- in this equation is addressing our fiscal house, short-term and long-term.

MARGARET BRENNAN: On the banking sector right now, last time you were here you mentioned concern about some of the smaller banks in America, community banks, being endangered. On Monday the government, the FDIC, sold failed regional bank First Republic to JPMorgan Chase. That's the country's largest bank, it got even bigger here. Are you going to take action to address some of this? Because there's concern on both sides of the aisle about big banks getting bigger.

REP. MCHENRY: Yes, and the way we have to do this is I agree with Michael Barr, the Vice Chair of the Fed's review, we have to provision for liquidity more quickly for these small, smaller banks. We have to make sure that we have a healthy banking arrangement across the whole spectrum. And we have to ensure the banking models can exist in a society where bank runs can happen more quickly than ever before. But let's get to the fundamentals here. If- if we look at the reason why these banks, the three of the 30 largest banks in America have failed in the last two months, it's because of interest rate sensitivity of their balance sheet. Which means they misjudged inflation. The Fed misjudged inflation, they've admitted it, they're behind the curve. The administration has been asleep at the switch for the supervisors of these institutions, but the root cause of this is inflation. And if we can address- address inflation, it gets to the disease rather than functioning- addressing the symptom.

MARGARET BRENNAN: Management choices and hedging their bets could have been a big factor here when it came to the CEOs who ran these institutions.

REP. MCHENRY: Absolutely.

MARGARET BRENNAN: Are going to call them in for testimony?

REP. MCHENRY: And they're going to be in.

MARGARET BRENNAN: When?

REP. MCHENRY: Two weeks, before the House Financial Services Committee. And this is going to be an important hearing. In the next two months the House Financial Services Committee will have the- the CEOs of these- these failed institutions, we're gonna have the regulators in, including Secretary Yellen, and Chair Powell at the end of June. We're going to have our Humphrey Hawkins hearing to hear from the Chair of the Federal Reserve, Jay Powell. Those are important dates in the in this calendar, especially given the state of banking in America today,

MARGARET BRENNAN: And all the pieces affecting the economy right now. I want to ask you as well, though, about the stability of the banking sector. Because you had Jamie Dimon, Jay Powell two of the most important people in the financial space saying banks are solid. And then we saw all the volatility in the marketplace again, this week: California's PacWest, Arizona's Western Alliance, those two regional banks under pressure. Are we going to see more government rescues?

REP. MCHENRY: Unfortunately, we're not out of the woods. But what depositors need to understand is, since 1933, when we enacted and created the Federal Deposit Insurance Commission, insured deposits have never had a penny of loss. We have 99% of the accounts in America are under the insured deposit cap level. And so 99% of the deposits in America are safe and sound. What we have to do is address over a period of time, the safety and stability of smaller banks, at a time where the market is judging their business model, their interest rate sensitivity, and the assumption that regulators are going to require a lot more capital for these banks to- to exist. They're making a big assumptions, but the stability of the counts? They're there.

MARGARET BRENNAN: You've got your work cut out for you. Good to have you on the program today. We'll be watching May 9, and we'll be right back.