ACB: Press Releases

Contact:	Robert Schmermund (202) 857-3104 Jim Eberle (202) 857-3145	Jim Eberle (202) 857-3145 (work) (703) 893-2593 (home) [email protected]	For Immediate Release August 2, 2001 #01-52
E-mail: [email protected]

ACB CALLS FOR PASSAGE OF LEGISLATION TO STRENGTHEN DEPOSIT INSURANCE FUNDS

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WASHINGTON, D.C. — America’s Community Bankers urged Congress today to move expeditiously to strengthen the deposit insurance system by resolving serious potential issues, especially the free-rider problem.

Testifying before the Senate Financial Institutions Subcommittee, ACB First Vice Chairman Curtis L. Hage said: “The deposit insurance system is still strong, but could be made even stronger. We urge you to move quickly to give the FDIC the flexibility it needs to deal with the strains imposed by extraordinary growth in insured deposits at a few institutions.”

Hage said prompt passage of legislation like H.R. 1293, a bill by Reps. Robert Ney (R-Ohio) and Stephanie Tubbs Jones (D-Ohio), will strengthen and stabilize the system. “ACB asks Congress to either pass this legislation immediately or make it the centerpiece of comprehensive reform legislation that can be enacted this year.” Hage is also chairman, president and CEO, Home Federal Bank, Sioux Falls, S.D.

H.R. 1293 would allow the FDIC to impose a special premium on excessive growth, merge the Bank Insurance Fund and the Savings Association Insurance Fund, and give the FDIC the flexibility to recapitalize the funds without imposing a 23-basis point premium.

“ACB’s strong support for addressing the most pressing matters certainly does not rule out adding other provisions if a consensus can be quickly developed,” Hage said. Other issues include capping the fund, providing rebates, and modestly indexing coverage.

But in the absence of consensus, Hage recommended moving ahead. “If the list of comprehensive reform proposals is too long for Congress to pass this year, we ask that you set priorities, enact what you can this year, and return to the rest next year,” he said. “Congress should not let the objective of comprehensive reform be the enemy of the necessary — stabilizing the deposit insurance system.”

Hage said the most urgent deposit insurance issue stems from a few companies — the free-riders — shifting billions of dollars from outside of the banking system into insured accounts at banks they control, diluting the funds and reducing the designated reserve ratio.

“The problem is not that the FDIC is holding too few dollars — earnings have kept BIF and SAIF balances relatively stable — but that those dollars are being asked to cover a rapidly rising amount of deposits in a few institutions,” Hage explained.

As the recent failure of Superior Bank and the 1999 failure of First National Bank of Keystone demonstrated, the combination of rapid growth and just a few failures could trigger a 23 basis point premium, Hage said.

On the issue of raising the $100,000 coverage limit, Hage said ACB supports indexing from 1974, which would bring the limit to approximately $135,000. Hage also urged Congress to focus on providing increased protection for retirement savings, especially given the growth of tax-advantaged savings accounts and the prospect of self-directed Social Security accounts.

Hage said that ACB strongly supports preserving the current statutory language preventing the FDIC from imposing premiums on well-capitalized and well-run institutions when fund reserves are above required levels. “Healthy institutions that are not paying a premium today paid extraordinary premiums in the 1990s — in effect prepaying for today’s coverage,” said Hage.

“Despite the rhetoric being used, they are not getting free coverage.”

Hage said the industry stepped up to the plate to recapitalize the insurance funds between 1992 and 1996. During that period, BIF-insured banks paid a total of $19.9 billion, while SAIF-insured institutions paid more than $8.4 billion. A bank with $100 million in deposits paid $810,000; a thrift of the same size paid $1.8 million.

America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com.

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