Providing for consideration of the bill (H.R. 1185) to reform the Federal deposit insurance system, and for other purposes.

Mr. Chairman, I yield such time as he may consume to the gentleman from Ohio (Mr. Gillmor).

Mr. Chairman, I yield myself such time as I may consume.

Mr. Chairman, there are several things about this bill that I am not sure have been discussed or are as widely known by the Members, but the first thing I would say is that the legislation is supported by all the federal bank regulators. It is also supported by all the industry groups. And it does several things. It addresses inefficiencies in the present system and deficiencies in the present system.

As far as deficiencies in the present system, one of the greatest is the fact that we have two different funds. The Savings Association Insurance Fund and the Bank Insurance Fund. All the Federal regulators have recommended combining those funds from the administrative cost savings and also because we do not want a situation where some of our institutions are paying certain basis points where others are not. We want more equity there so it gives no advantage for our thrifts over our banks or our banks over our thrifts.

Another problem we have had increasingly is the problem of free riders. Since 1996, there have been no assessments of the banks for the Federal insurance, and as a result of that, we have had several large brokerage firms which have never paid into the fund, and what they are doing is setting up affiliate banks, six or eight or nine affiliate banks, and they are advertising $800,000 or $900,000 worth of federally insured deposits. In other words, people can deposit $800,000 or $900,000 into to their fund, and it is federally insured. This really is an inequity because they have never paid into the system and they are offering that something that smaller banks and other banks that do not set up these affiliates or string of affiliates and can only offer $100,000 of coverage; and, in fact, those banks or thrifts that are only offering $100,000 worth of coverage are actually paying and have paid for coverage for some of the large brokerage firms.

And the Federal Reserve, the FDIC, and the industry have said that this ought to be corrected, and we do that in this bill. We do that in two ways. One is by requiring that everyone pay a minimum amount; number two, we increase the coverage; and number three, we allow more flexibility in when the premiums are charged. Right now when the bank reserves fall below 1.25 percent, the Federal Reserve actually has to start charging a premium, and then if the situation is not rectified within a year, they have to then start charging 23 basis points, and they have little discretion in this matter. The bank regulators and the industry have recommended that what we do as opposed to having a hard number that we give a range, or a discretionary range, and we have done that at 1.15 to 1.4.

What this allows to happen is, if we think about it, there are no premiums being charged, and then all of a sudden we go into a recession and we start charging a premium, or 23 basis points, it actually can worsen the recession, and at the time when banks ought to be lending money, suddenly they are having to pay these premiums. The time to fund the insurance program and the insurance reserve is in good times.

So what we have done in this bill is allow them to build up a reserve in the good times, and then when we come into a recessionary period and bank reserves start dropping, they have some discretion in not instituting a 23-basis-point charge on the banks. And policymakers and all the Federal bank regulators believe that this will not only strengthen the funds, but it will take away a bias against a down cycle that could actually make a down economic cycle worse.

One of the things that is being debated, and the gentleman I am going to yield to next is going to be in opposition to the coverage increase, is the coverage increase. When we consider increasing the coverage, there have been two arguments against that. One was a ``moral hazard'' argument. The FDIC, in response to some people saying that if we raise the coverage, it will be a moral hazard, actually commissioned a study and appointed the vice chairman of the Federal Reserve, Alan Blinder, as the chairman of that study commission, and they came back and said because these are risk-based premiums, there is absolutely no validity to the moral hazard argument.

If we think about it this way, what this is, is an insurance, and bank depositors pay a premium on their deposits for insurance coverage. And to argue that if that coverage is increased from $100,000 to $130,000 suddenly would cause reckless behavior, it would almost be like arguing that if I had automobile insurance and I had $100,000 worth of automobile insurance on my automobile, and I raised that to $200,000 of insurance coverage that I would suddenly start driving more recklessly or be more prone to have accidents, and we know that when people insure, whether it is a deposit, an automobile, or a home, they are not any more apt to act in a reckless nature. So that argument has been shot down pretty uniformly.

A second argument against it is that we do not need to increase it. But one of our last bank failures was a bank in Chicago, a medium-sized bank. And what we found, because we had not raised the coverage levels above $100,000 since 1980, we found over 700 customers of that bank lost a substantial amount of their deposits, and the reason they did that, if we think about what depositors do, we had several hundred of them that had an IRA account with that bank, and they had an IRA that was over $100,000, and they basically lost everything above $100,000. And one lady that was quoted in the Chicago Tribune said, The loss I sustained is going to be the difference between my having a retirement where I will not have to struggle, and now, basically having a bare bones retirement where I will have to struggle to make ends meet.

We have another situation that we talked about in committee, and that was the fact that today many people are selling and buying houses, and when they do, they put the proceeds of that sale or the purchase price for that sale in a bank account. In 1980 the average price of a home was around $100,000. Today it is several times that amount. So imagine that if one is closing on a house, they sell their house, they get a $400,000 or $300,000 check or even a $200,000 check for that house, and most Americans put their savings in a house, they go down to their bank and they deposit that check and the bank happens to fail.

And every once in a while, a bank does fail like the one in Chicago. In that case, they had 12 people that had deposited the proceeds from the sale of their homes in the weeks before and they lost all of that money above $100,000. Some would say and some have said in opposing coverage increase that what Americans ought to do is when they sell a home, if they sell a home for $300,000, they ought to ask the closing attorney to write three $100,000 checks and they ought to deposit that in three different banks, or, if they are going to purchase a house, they ought to go to three different institutions and deposit that money in three different institutions, and then when they show up at the closing, they ought to write three different checks.

We know as a practical matter, Mr. Chairman, that people are not going to do that, and we should not ask them to do that. What we ought to do is raise coverage levels to reflect realities today.

The last time that coverage was increased in 1980, if we increased it for inflation today, it would be well over $180,000. Instead, we are only increasing it to $100,000 as a compromise. If we went back to not 1980 but we went back to 1974, which was the time before that that it was increased $40,000, and if we had adjusted it in 1980, it would be over $200,000. If we disregarded that increase and went back to 1974, it would be $180,000. So we are actually playing catchup here, and we have used that smaller number in an attempt to compromise with those who objected to increasing it at all.

I will say this: This bill passed with 111 votes the first time it was up, I think, but, anyway, I will get those statistics later, but I think it had 18 ``no'' votes the first time, 11 ``no'' votes the second time.

Mr. Chairman, I reserve the balance of my time.

Mr. Chairman, I yield 5 minutes to the gentleman from California (Mr. Rohrabacher), who is in opposition to the bill.

Mr. Chairman, I yield myself all remaining time.

There are several things I think we need to say to correct the record. One was it was said by the gentleman in opposition that this was taxpayer guaranteed; and, in fact, these deposits are insured not by the taxpayer, but by the BIF and SAIF funds; and it is the depository that insures his own accounts. And for the taxpayer to pay one red cent, all assets of every federally insured financial institution would have to be exhausted before the taxpayer would have to pay one cent. In other words, all the assets of all of the federally insured banks and savings associations would have to be paid.

And in that regard, I am sure the gentleman from California would agree that if that moment ever came, we would be, we would probably be in dire straights, and I certainly never anticipate that happening. It has never happened in the history of our country. The savings and loans were exhausted, not the banks. The BIF account has never been exhausted; the savings and loan account thing was exhausted because of failures of savings and loans.

And if we say, as the gentleman said, that the reason why all the savings and loans failed is because we increased coverage from $100,000 to $130,000, we did that for the banks and the credit unions at the same time. No credit unions failed; very few banks failed. In some States, no institutions failed, where in States like California, Texas, where you had weak regulation, weak oversight, several failed; or you had the oil patch in Texas where many of them failed.

In fact, the cost to the taxpayer would have been greater had the first $100,000 of accounts not been insured. It would have been a much greater loss. Thank goodness the first $100,000 of accounts were insured. If we had another failure today, $130,000 would be insured, and we would have insurance for it. So to say that insurance coverage is taxpayer funded, the taxpayer is not funding this. If the taxpayer were funding it, his analogy would be right.

And the last thing that he says, and he has said this, is that this was the cause of the savings and loans to fail. This has been looked at by this Congress, it has been looked at by the FDIC, it has been looked at by the Federal Reserve and, actually, I am going to introduce this. This is about 20 different reasons that government reports have causes for the failures of the S&Ls; and on that list of 20, nowhere does it say because of an increase in coverage. In fact, the FBI submitted what they thought were the reasons, the FDIC submitted what they thought were the reasons, all the bank regulators, and nowhere on any of those lists do we find increase in coverage. In fact, what you do find is one study showed that taxpayer exposure was less because the funds were insured up to $100,000.

Mr. Chairman, I will just simply close by saying that all the Federal bank regulators say that this legislation will strengthen and reform our Federal guarantee program for bank deposits and by saying that today, if you sell a house for $120,000 or $140,000 or $160,000 or $200,000 and you deposit the proceeds in your bank account, you are probably not a rich person by definition. If you decide to buy a house and you put $150,000 in the bank or transfer it or get a loan from a bank and you deposit it in your account, you lose that, you certainly would not be defined as rich. And if you have a 401(k) and you happen to have over $100,000 in it, that does not make you a rich person. In fact, that represents, for many people, their entire savings is a 401(k); and, increasingly, those accounts are running over $100,000.

That is why the AARP and the Securities Investment Institute both endorsed this legislation.

Mr. Chairman, I yield back the balance of my time.

Mr. Chairman, I had one glaring oversight in this entire debate concerning the bill. And that is the fact that the gentlewoman from Oregon (Ms. Hooley) who really played a monumental part in this legislation over the past 2 or 3 years and actually was the original cosponsor of this legislation has not been recognized.

I would like to commend her for her fine work on this bill. And I guess it is

a credit to her and her personality, despite that oversight she did not call attention to my omission. And so I commend the gentlewoman from Oregon (Ms. Hooley). She is an outstanding Member of this body. And in this legislation, she deserves a lot of credit for its passage and its support.

Mr. Chairman, I move to strike the requisite number of words.

Mr. Chairman, one thing the gentleman from California (Mr. Rohrabacher) mentioned and I would like

to say in his defense: he has triplets at home, so I think we ought to have a lot of patience for the gentleman. They are very young. One- year-old triplets.

I yield to the gentleman from Massachusetts.

Second, the gentleman did mention the fact that we do have a provision in here covering municipal deposits or government deposits and that is for $2 million. The reason we did that is not to protect the big guy or the rich guy.

The reason we did that is from time to time a school system or a city or a county or a governmental retirement system will put $2 million or $1.5 million in a bank and it is really not practical for them to go around and put $100,000 in each bank. And that is basically as a result of the American Association of School Boards and others saying not only do we want to deposit more than that, but in several States, particularly the Farm Belt, there is only one hometown institution. And the school board or the government or the city or the fire district wants to deposit their money in their own hometown. And that is to allow that.

I yield to the gentleman from Ohio.

Mr. Chairman, I have two counties, one is Bibb County, one is Shelby County. The school board in those counties is forced to take about 96 percent of their money and deposit it out of county because there are only two hometown institutions, and they would like to deposit in those, as long as those are rated A institutions, and again I say that they are paying a premium on their deposits for this coverage.

The second thing I would say is if the gentleman will go back to 1980, what you had is we deregulated the savings and loans. We made tremendous changes in their mission. And at that time they had 30-year mortgages. They had loaned out money at 4 percent, 4.5 percent, 5 percent. From 1979 to 1981, the interest rates increased, the Federal Reserve continued to increase the interest rate because of inflation, which the gentleman from Massachusetts (Mr. Frank) mentioned, and they drove the interest rate up above 20 percent. The prime rate was 21 percent.

So the savings and loans were having to borrow money at 21 percent and had loaned it out at 4 and 5 percent; and predictably, particularly in Texas where the price of oil fell, the savings and loans in Texas started failing one right after the other. And as I said earlier, if it were this increase from 40 to 100,000, you would have expected to see it show up in the banks; you would expect it to show up throughout the Nation.

I do not think the people in Texas where most of the first failures occurred, Louisiana, I do not think they were engaged in any more fraudulent conduct or reckless behavior except that what they were doing, that was a boom economy in Texas and property values shot up, and there was a bubble and they came back down.

But during all of that, the bank fund did not fail. And as I have said before, before one dollar of taxpayer money comes out of this account, it requires the funds to be exhausted. It, second, requires the banks, their assets to be liquidated, and only at that point would the taxpayer step in. That would be a heck of a depression. And I think that would be a depression made only worse if school boards, governments lost their deposits, if people lost their 401(k)s, if they lost any of their savings above $100,000, businesses who had accounts. And some of those might be rich people, the guy that owns the small business and has $400,000 or $600,000 deposited or a contracting company that has just been paid on a contract.

I think it would make the recession or depression or economic shock that much worse. I believe that this legislation is sound legislation and should be supported.

Mr. Chairman, I yield myself such time as I may consume.

I rise in strong support of the Federal Deposit Insurance Reform Act of 2005. This is a strong bipartisan effort. I commend the leadership of Chairman Oxley and Ranking Member Frank, as well as Subcommittee Chair Bachus and Ranking Member Sanders. This will be, hopefully, the third time that this Congress has passed this legislation. It has enjoyed broad bipartisan support.

Federal deposit insurance, established during the Great Depression to restore confidence in the Nation's troubled banking system, has served our country well; but no system is perfect, and Congress has periodically revised our deposit insurance laws in response to changing economic and industry conditions. There is a growing consensus triggered in part by recommendations by the Federal Deposit Insurance Corporation, FDIC, that deposit insurance is overdue for needed structural reform.

H.R. 1185 would merge the Bank Insurance Fund, BIF, and the Savings Association Insurance Fund, SAIF, into a single fund covering all banks and thrifts; increase per-account coverage levels from $100,000 to $130,000; and adjust that coverage for inflation every 5 years beginning in 2007; and double the $130,000 coverage amount in the case of certain retirement accounts, including IRAs and 401(k)s. Providing $260,000 in deposit insurance coverage for retirement accounts is critically important in an era when many Americans have accumulated retirement nest eggs that far exceed $100,000, and when, according to FDIC estimates, there is more than $200 billion in IRA accounts alone in this Nation's banking system.

Several high-profile bank failures in recent years have given many Americans a rude awakening as they discover that amounts in their retirement accounts above the $100,000 coverage limit are uninsured.

The bill also raises coverage levels on in-state, municipal or public deposits. This will have the effect of encouraging local government agencies to keep more of their deposits in the local communities where the funds were generated, thus promoting economic growth in those areas.

Finally, the bill fully implements a provision enacted more than a decade ago to give banks a discount on their deposit insurance premiums for deposits attributable to so-called basic banking accounts which provide a financial lifeline for low-income families that are currently without bank coverage.

This has strong bipartisan support. This legislation passed this body last year with a vote of 411 to 11, and this year's effort likewise enjoys very strong bipartisan support.

Mr. Chairman, I reserve the balance of my time.

Mr. Chairman, I yield such time as he may consume to the gentleman from New York (Mr. Meeks).

Mr. Chairman, I thank the gentleman for yielding the time and for his leadership as a whole.

Mr. Chairman, I am very supportive of this outstanding bipartisan bill. I am supportive of the overwhelming majority of the provisions in it. It is long past due to merge the BIF and SAIF insurance funds, and additionally, eliminating the 23 basis point clip, and providing a new premium system that takes into account the past contributions of institutions are major steps forward.

The bill includes a mechanism for determining credits for past contributions to the insurance funds that is based on an amendment that I cosponsored with former Representative Bereuter. This is a very, very important provision as a matter of fairness to institutions that recapitalized the funds, and I thank very much the gentleman from Alabama (Mr. Bachus) for including this balanced and important amendment in the base legislation.

Despite the many very positive parts of this bill, I believe the immediate 30 percent increase in insurance coverage in the bill is a serious mistake. This coverage increase to $130,000 is opposed by many Federal financial service regulators, including Alan Greenspan. I would like to place in the Record his comments in opposition, and state that I support the bill overwhelming, but this provision I am opposed to.

I thank the leadership and the ranking member for working in a balanced way to move this important legislation forward.

Mr. Chairman, I offer an amendment.

Mr. Chairman, first of all, I would like to thank the gentleman from Massachusetts (Mr. Frank) our ranking member, and the gentleman from Ohio (Mr. Oxley), our chairman, for working in a bipartisan way for truly the grand goal of safety and soundness in our financial systems and keeping them competitive in the world financial market.

My amendment is one that I am going to offer and withdraw, because the chairman has generously offered to work with me in committee under a separate introduced bill to pass the intent of this. And what my amendment would do is that it would prevent banks from charging customers bounced check fees when the money is already there in the bank, and when it is simply a matter of which journal entry the bank makes first.

We did have a hearing on this earlier in the Committee on Financial Services. And some of the banks' representatives testified that many banks do this already. So this amendment would simply require all banks to do so consistently and prevent abuses.

In other words, if money is there, but it has been deposited, then you cannot withdraw that money, the deposited money should be credited before the money is withdrawn from the bank.

My amendment would also prevent banks from charging customers for overdraft protection when the customer has not requested this service. Again, this is simple and fair and straightforward. And sometimes, in some cases in some banks, the overdraft protection costs more than the overdraft penalty.

So it would really prevent hidden charges and fees for services customers have not even asked for, in this case, financial institutions. So I have been assured that by the parliamentarian that my amendment would be immune from a point of order. The Committee on Rules accepted it.

But I will be withdrawing it with the consideration of the chairman to fully discuss this in committee, and I yield to the gentleman from Ohio (Mr. Oxley) our chairman, and I thank you for working in a bipartisan way on this and so many other issues.

I yield to the gentleman from Ohio.

I yield to the gentleman from Massachusetts.

Mr. Chairman, I ask unanimous consent to withdraw the amendment.

Mr. Chairman, I rise in support of the amendment.

I believe the immediate 30 percent increase in insurance coverage in the bill is a serious mistake. The coverage increase to $130,000 is opposed by most of the Federal financial service regulators.

Proponents of the increased coverage argue that it poses no risk to the insurance system, but the regulators who oppose this increase are the very officials whose job it is to protect the safety and soundness of the financial system. The almost unanimous opposition to increased coverage by the regulators is a very powerful message.

I would like to really quote some of these regulators. Alan Greenspan has come out very strongly opposed to it. He said, ``It is unlikely that increased coverage, even by indexing, would add to the stability of the banking system today.''

The Undersecretary of the Treasury for Domestic Monetary Policy, Peter Fisher, said, ``Increasing the overall coverage limit would weaken market discipline and further increase the level of risk to the FDIC and to taxpayers.''

Mr. Chairman, I would like to put in the Record quotes from the Comptroller of the Currency, the Director of the Office of Thrift Supervision, and the Congressional Budget Office, all raising questions and in opposition to this raise.

Another argument put forth by proponents of coverage increases is that inflation has eroded deposit insurance. I do not believe that this argument matches the actual situation of the banking industry. The fact is that only 2 percent of insured accounts have more than $100,000 according to the Federal Reserve.

Mr. Chairman, at the appropriate time I would like to place this study into the Record.

The same Federal Reserve study put the average account balance at $6,000 across America. Any way you look at it, the increase in coverage will benefit very few depositors.

Proponents of increasing coverage also contend that because insurance premiums are paid by banks, increasing coverage does not cost taxpayers. While I concede the point, I think we also have to remember that behind the Federal deposit insurance funds is the full faith and credit of the United States Government.

Since I joined the Committee on Financial Services in 1993 at the close of the S&L crisis, I have been committed as all of my colleagues are on both sides of the aisle to protecting the safety and soundness of the banking system.

While I concede and agree with my colleagues that the causes of the S&L failures were many, the fact is that standing behind the insurance system are our constituent taxpayers. The bailout we voted for was constituent taxpayer dollars to bail out the S&L.

No matter what the reasons are for a future bank failure or a string of failures, there could be many reasons for them, by raising the insurance coverage, we increase the potential liability of the government and, thereby, the American taxpayer.

I also believe that raising the coverage may encourage the concept of moral hazard. Institutions will be encouraged to engage in riskier behavior to boost earnings if they know that failure is ensured by the Federal Government.

I would also like to place in the Record a letter to Members of Congress from The Financial Services Roundtable, which very strongly supports the underlying bill, which is a

fine piece of work that has passed this body two times previously, but also raises many concerns about raising the limit to $130,000.

The material that I referred to previously I will insert into the Record at this point.

The Financial Services Roundtable,

Washington, DC, April 22, 2005.

Hon. Barney Frank,

House of Representatives,

Washington, DC.

Dear Barney: I would like to commend you on your leadership

and continued efforts on deposit insurance reform. An

effective deposit insurance system is critical to the economy

and maintaining public confidence in the U.S. banking system.

The Roundtable is committed to working with the Financial

Services Committee to develop reasonable, responsible deposit

insurance reform legislation that the Roundtable and the

industry can support.

The Roundtable supports the passage of H.R. 1185, the

``Federal Deposit Insurance Reform Act of 2005.'' We also

support the adoption of the ``Managers Amendment.''

The Financial Services Roundtable, a national association

representing 100 of the largest integrated financial services

companies that together constitute nearly 70 percent of the

deposit insurance assessment base, believe that H.R. 1185

will help assure a sound deposit insurance system. In

particular, we believe a major improvement to the bill was a

provision that stated no insured depository institution shall

be barred from the lowest-risk category solely because of

size.

Further, the Roundtable supports: Merging the Bank

Insurance Fund (``BIF'') and the Savings Association

Insurance Fund (``SAIF''). A combined BIF/SAIF would be

stronger and more resilient. The provision in your bill that

caps the FDIC's assessment authority at 1 basis point for

those institutions in the lowest-risk category. The bill's

study of the effectiveness of the prompt corrective action

program, and a strong system of credits and rebates such as

you have in your legislation.

We remain concerned about provisions in the bill that would

increase deposit insurance coverage limits. Our members

believe that raising coverage limits could weaken market

discipline and increase risk to the FDIC, all insured

institutions, and ultimately American taxpayers. Federal

Reserve Board Chairman Alan Greenspan has stated there is no

evidence that an increase in coverage levels would promote

competition or materially improve the ability of financial

institutions to obtain funds. As Chairman Greenspan noted,

the evidence in recent years shows that financial

institutions of all sizes have not experienced difficulty

in obtaining funding from insured or uninsured deposits.

For those customers with substantial deposits, ample

opportunities exist to obtain FDIC coverage equal to

several multiples of $100,000. Since the FDIC is in good

shape financially, there is no need to grant the FDIC

additional authority to levy deposit insurance premiums.

Thank you again for your leadership on deposit insurance

reform and your consideration of the Roundtable's views on

this important matter. We look forward to working with you as

this legislation moves through the legislative process. If

you or your staff have any questions or would like to discuss

these issues further, please call Irving Daniels or me at

(202) 289-4322.

Best regards,

Steve Bartlett,

President and CEO.

Mr. Chairman, I rise in opposition to H.R. 1185, but I appreciate all the hard work that the gentleman from Alabama (Mr. Bachus) and the gentleman from Massachusetts (Mr. Frank) have done on this bill. I understand that they are very sincere in their efforts, but I have a strong philosophical opposition to what this bill represents and what it is all about.

Let me note that if section 3 were taken out of this legislation, I could support the bill; but the heart of this bill is section 3, which is a 30 percent increase in the Federal deposit insurance rate. What we are talking about here is increasing Federal deposit insurance, the taxpayers' guaranteeing private accounts in private banks from $100,000 to $130,000; for savings accounts I think it goes up to $240,000, $250,000, or is it $260,000; as well as $1 million, I believe, for community-type savings accounts.

But the most important factor here is this: this system was set up to protect the little guy. It was set up to protect average Americans who are not saving hundreds of thousands of dollars, so that they could save $10,000, $20,000, $30,000 and not worry about having a bank default and close up on them and then losing that money.

What has happened is a perversion of that basic premise. What has happened now is the taxpayers, the average person out there working is protecting the rich guy. We have the little guys now with their tax dollars protecting the rich guys who, at $100,000 in an account, and now they want to make it $130,000 in an account are protected by the taxpayers. It is not just one account, however. There are multiple accounts that these rich people use, so we are not just protecting $130,000. We are protecting $130,000 times 10 or 20, where they can place it in various banks. What we end up doing is having the little guy protecting the rich people in this society.

And there is a downside to having this protection. Not only is it not fair, but the downside is people who invest their money, when it is guaranteed, will be less cautious about where they put their money. We have just heard from the gentleman from Alabama (Mr. Bachus) about the people who lost their money in a bank. Well, those people should have paid closer attention to that bank. The fact is that we are encouraging people to be frivolous where they are putting their money because we are guaranteeing it as taxpayers.

This is exactly what led to the savings and loan debacle in the 1980s. In 1980, before Ronald Reagan was elected President, this went from the early 1970s, from $10,000, to 1980 when they jumped it to $100,000 protection. All of a sudden, people could then invest with these multiple accounts, millions of dollars protected by the taxpayers.

So what happened? What happened is, we have millions, billions of dollars now in our system being invested in the most irresponsible way. Because the banks and the savings and loans themselves, no matter what, they ended up paying more interest than they should have. The bad institutions were bringing down the good institutions, and the public was protected from any bad decision they made. We ended up with a debacle, a financial debacle created by this increase in 1980 that ended up by the mid-1980s costing us tens of billions, maybe even $100 billion of the American taxpayers' money.

We do not need this kind of irresponsibility. That is not what this program started out as. It has been perverted to be that now. Section 3 is just that kind of perversion, where we end up now increasing it precipitously from $100,000 to $130,000. It should be basically back in the arena of the average American taxpayer instead of protecting the rich.

So with that said, I can remember personally, just to note, I remember during the mid-1980s when I worked in the White House, a friend of mine from the Reagan administration was in charge of one of those institutions, savings and loans, and he was being attacked because he was not giving out enough loans to various people and various institutions that would be guaranteed. He was not giving out these guaranteed loans, and I called him up, I said, Well what is the matter? Are you not part of the team? We want to have a strong economy. He said, Dana, we are being put behind the eight ball. Every one of these things that we are giving out has a government guarantee because of this deposit insurance, and it is going to take us right down the road to economic hell.

Well, that is exactly what happened, and we should not be going in that direction anymore. We should be doing a reversal, making the system more responsible, asking people to be more responsible with their money and where they put it and not having the middle-class taxpayer subsidizing rich people by guaranteeing wherever they would want to put their money.

I oppose the amendment, and I will be proposing an amendment later on.

Mr. Chairman, I offer an amendment.

Mr. Chairman, let me reiterate that I do this with great respect to the gentleman from Alabama (Mr. Bachus) and the gentleman from Ohio (Mr. Oxley) and the gentleman from Massachusetts (Mr. Frank) who put a great deal of time and effort into this bill and this legislation.

I have a fundamental philosophical disagreement about Federal Deposit Insurance. But I have no doubt that they have worked hard to try to produce some good legislation here.

With that said, I offer this amendment on behalf of myself and the gentlewoman from New York (Mrs. Maloney). The Rohrabacher-Maloney amendment would strike out section 3, keeping the Federal Deposit Insurance at its current level of $100,000 per account.

Let me note the argument was made earlier that simply by raising insurance, for example, from $100,000 to $130,000, would that, we were asked, make people more irresponsible if it was car insurance, and you just increased the car insurance from $100,000 to $130,000? The answer is, yes, if someone else was paying for the car insurance.

If somebody gave whatever it is, if the Federal Government ends up coming in and saying, if all else fails, do not worry, you are going to get paid off, because we are going to pay it, the taxpayers will pay it in the end, if this whole system fails we are there. Yeah, people who ended up not having to take that responsibility off their shoulders, the institutions might be a little less responsible, and, of course, the individuals themselves might be less responsible in picking out where to put their money.

This bill also increases to $260,000 retirement accounts, the deposit insurance for that, and $2 million per account for municipalities. Well, this, as I say right in the beginning, the FDIC was supposed to be for the little guy. And, again, there has been the argument that the gentleman from Massachusetts (Mr. Frank) gave, well, $100,000 or $130,000 these days is the little guy. Well, that is if you are counting one account. Everybody involved in this knows that we are taking about multiple accounts.

Now we are talking about multiple accounts of $130,000 per account, and, yeah, someone who has 10 accounts at $130,000 is someone who I would catalog as rich. But, I just say this much, yes, if someone has $1.3 million in various accounts that are going to be ultimately guaranteed by the Federal Government, and the question is, where

does this money come from? Does it come from, yes, the banks and the savings and loans?

Well, it comes, yes, from the banks and savings and loans. But, what is important is, the ultimate guarantor is the Federal Government, otherwise we would not be talking about that.

But, when we put the taxpayers on the ultimate hook, will it ever happen? Well, it has happened, and I have seen it happen, and you have seen it happen. And this bill may or may not make that less likely. In fact, when you combine the deposit insurances, and put them together, yes it might add some strength to the system, but it also means that if the system collapses, it collapses big time, big time collapse; not just medium time collapse, but a big time collapse.

So could it happen? Yes, it could happen. I think that things like this happen, like the savings and loan debacle, because fundamental principles are ignored. And the fundamental principles are people should be responsible for their own money, and that institutions should be responsible.

If they commit acts or they are charging too much or their expenses are too high, or they are not competent enough, people should not be placing their money in that institution simply because there is a guarantee, there is a deposit guarantee, which is what we have now.

By ignoring these fundamental principles, you have less responsibility on the part of the depositor and less responsibility on the part of the financial institution. So here we are, faced with a major jump in the deposit insurance. What are we going to do?

I think it is about time to reexamine the fundamental issue of whether or not we should be guaranteeing this deposit insurance in the first place. And I will say, as I have said before, I watched this happen during the Reagan administration. In 1980, they dramatically increased the deposit insurance, and do not tell me that there have not been people, well known economists suggesting that that was a major cause of the savings and loan debacle, they are.

Because, even today Alan Greenspan, Milton Friedman and others oppose this increase in the deposit insurance for that very reason, because they have seen that this makes the system more vulnerable, and we should not be doing that.

With that, I would suggest that I would hope that people could vote for my amendment to strike section 3 out, which would then increase that.

Mr. Chairman, will the gentleman yield?

If that is the criteria we are using, why do we not then limit it to one account because the less sophisticated people will not have multiple accounts.

Would the gentleman support that one?

I thank the gentleman very much.

Mr. Chairman, I yield myself such time as I may consume.

I appreciate the gentleman from Alabama's letting us butt into his conversation.

I want to speak in favor of the bill. It is an example of the things that we do that are not controversial and are not exciting to a lot of people but are, in fact, very important for the proper functioning of the economy. This is an upgrading and an updating of the deposit insurance system. It is widely supported by financial institutions. There is a difference of opinion on one aspect, the coverage increase, but I will say that, while I support the bill as written and support the coverage increase, it is my hope that however that

winds up, it will not lead to the demise of the bill. The bill is an important piece of legislation for improving the functioning of the banking system.

I just also want to point out two things: There is a mistaken assumption abroad that somehow things have gotten so poisonous here that nothing ever happens. There are issues on which we disagree vehemently, but the fact that this bill is coming forward from the Committee on Financial Services with overwhelming support from the committee, disagreement on one specific point, is a refutation, that I think people ought to know that, no, it is not the case that we have been so embittered towards each other that we cannot function. This bill comes forward with support on both sides.

It also, as was noted by the gentleman from New York who spoke earlier, contains a section that what we call lifeline banking. And not all banks in the world were having parties when that was included, but it is an important point to be made here. It is our job to pass legislation and to do things that help the financial system function. Banks are good institutions. They perform useful roles in our society. But there are also needs that individuals have, particularly lower income individuals, that are not going to be automatically taken care of by even the best functioning market, and our job, in part, is to advance measures that help the institutions function but at the same time provide a degree of fairness, a kind of minimum support, for people who will not automatically benefit from the general going forward.

This bill is an example of that, and I want to say that the inclusion of this lifeline provision is very important. I appreciate the majority's accommodating the concern that people had, the gentlewoman from California (Ms. Waters), who pushed hardest for this; so I hope that this package will go forward as an example that even at times that are very contentious, we can work together on legislation that bridges some gaps and advances the system.

Mr. Chairman, I reserve the balance of my time.

Mr. Chairman, before I yield, I just would say sometimes we have debates about where does wealth begin and what is middle class, et cetera. I guess I would differ with the gentleman from California that if you have $100,000 in the bank, you are a little guy, but if you have $130,000, you are rich. I think that unduly compresses the middle class. I think much more is being made, frankly, over $30,000 than is deserved.

Mr. Chairman, I yield 3 minutes to the gentlewoman from Oregon (Ms. Hooley).

Mr. Chairman, I yield 3 minutes to the gentlewoman from New York (Mrs. Maloney).

Mr. Chairman, in a very impressive display of bipartisanship, I am now going to yield some of our time to the manager of the bill for the majority.

Mr. Chairman, I yield such time as he may consume to the gentleman from Alabama (Mr. Bachus) as long as he does not talk about the Rohrabacher amendment.

Mr. Chairman, I yield myself such time as I may consume.

Mr. Chairman, I thank the gentleman from Alabama (Mr. Bachus) for his great graciousness in what he had to say. And let me say in deference to the chairman of the committee, the gentleman from Ohio (Mr. Oxley) a great baseball leader, if you notice, I yielded to the gentleman from Alabama (Mr. Bachus), who then came back to this side to thank us.

If you're scoring this, it is 3 to 6 to 3, I believe is the appropriate scoring.

Mr. Chairman, I yield back the balance of my time.

Mr. Chairman, will the gentlewoman yield?

Mr. Chairman, I thank the gentlewoman from New York (Mrs. Maloney). She has been very much in the forefront overseeing this issue. Along with her, I and others have written some letters to the Federal Reserve. We have been staying very much on top of this.

The gentlewoman has been performing a real service, and I appreciate the cooperation of the chairman. I look forward to our being able to work together to make sure that consumers are protected.

Mr. Chairman, I move to strike the last word.

Mr. Chairman, the gentleman from California (Mr. Rohrabacher) simply multiplies his mathematical difficulty. He said, well, when I said if you have $100,000 under his calculations, you are a little guy but if you have 130,000 you are rich. He says, but what if you have 10 times $130,000? The answer is, well, what if you have 10 times 100,000? Thirty percent is still 30 percent.

So the fact is that he is ascribing to a 30 percent increase a qualitative impact that simply will not stand up to analysis. He says, well, you can have 10 accounts and you would have 1.3 million. Yes, and you could have 10 accounts and have 1 million.

So the difference is really quite small. I must say even when the gentleman from Alabama (Mr. Bachus), with whom I agree here, talked about this will save people, $30,000 is not going to make a big difference one way or the other. I believe it is a step in the right direction.

First of all, understand that much of the argument for this comes from smaller institutions who fear the negative competitive effect of the doctrine of ``too big to fail.'' By the way, the large institutions are on the whole not for this. The large institutions feel that if people are worried about a bank failure affecting their accounts, if they have more than the insured amount they will put it in the largest possible institution to the detriment of smaller institutions. I do not think it is a good thing for there to be that kind of competitive pressure exercised against smaller banks. That is why they are very strong advocates of this.

I yield to the gentleman from Ohio.

I thank the gentleman.

The other thing I want to do is to disagree very strongly with the gentleman from California (Mr. Rohrabacher) on the causality of the savings and loan crisis.

I do not believe, having served here at the time, and I have seen very few analyses that said the deposit insurance issue was effective, it increased the cost but it was not the cause of the failure. And those are really two quite distinct things.

The causes of the failure I believe were two. First of all, we imprudently loosened substantially what savings and loans, thrift institutions could invest their money in. So they became invested in things that were much less insured. They were not just doing houses; they were doing a lot of open land, et cetera.

Secondly, this Congress in 1981 passed tax legislation that greatly inflated the value of real estate and then in 1986 undid it. If you wanted a dictionary example of going from one extreme to another, it was the treatment of real property and real estate in the 1981, 1986 tax act. So we kind of baited and switched people.

In the 1981 act we gave, I say ``we'' because I voted against the 1981 act. I vote for the 1986 act, but Congress gave people incentive to invest in real estate. And because of the tax advantages, it made sense to buy an empty building and not have anybody in there in some cases literally because of the tax advantages. But in 1986 we rationalized the Tax Code, but we did it too rapidly and there were people caught in the middle. I believe those were the two major causes.

I agree that increasing deposit insurance raised the cost of it, but I do not think it is causal. Just to go back, I think, frankly, it is the least sophisticated saver who we protect by raising this rate.

The gentleman said correctly, you can open 10 accounts, 12 accounts, 13 accounts; but more sophisticated people unfortunately, the deposit insurance limit is not very effective against them; but there are people of less sophistication, less ability to be mobile, and they are the ones who do it. I do think if your life savings is $130,000 you are rich. And I think trying to protect the least sophisticated people that way and to preserve against unfair competitive pressures on smaller institutions justifies the bill.

I yield to the gentleman from California.

May I ask the gentleman a question. Did someone keep the gentleman from offering that amendment? Why did the gentleman not offer that amendment? It is the gentleman's amendment. Is the gentleman criticizing me for his amendment?

If the gentleman thinks his amendment should be different, make it different.

Well, we will deal with this one; and when the gentleman brings that amendment up, we will deal with that one.

I want to make it very clear. I did not stop the gentleman from offering any amendment he wanted to.

Mr. Chairman, will the gentleman yield?

Mr. Chairman, I think we would all agree that that would certainly justify at least three accounts. One for each child.

Mr. Chairman, I yield myself such time as I may consume.

Mr. Chairman, I rise in support of H.R. 1185, the Federal Deposit Insurance Reform Act of 2005. This bipartisan legislation preserves the value of insured deposits at America's banks, thrifts and credit unions, advances the national priority of enhancing retirement security for all Americans, and ensures that the benefits and costs of deposit insurance are allocated equitably and fairly among financial institutions.

Federal deposit insurance was first established in 1934 during the Great Depression and has served for over 70 years as a source of stability in the banking system and a valued safety net for depositors. Deposits in banks and savings associations are covered either by the Bank Insurance Fund or the Savings Association Insurance Fund, while the deposits of America's 85 million credit union members are insured by the National Credit Union Share Insurance Fund.

Federal deposit insurance serves as a guarantee to depositors in U.S. depository institutions that up to $100,000 will be available to them in the event that their institution should ever fail. It both protects depositors from a sudden and unforeseen loss of wealth and insulates the economy from the consequences of a loss of liquidity in the banking system.

Shortly after I became chairman of the newly formed Committee on Financial Services in the 107th Congress, the FDIC, the Federal agency responsible for administering the deposit insurance program, recommended a number of reforms to the system to address structural imbalances that had emerged since the last major overhaul of deposit insurance following the savings and loan crisis of the late 1980s and early 1990s.

The gentleman from Alabama (Mr. Bachus), the chairman of the Subcommittee on Financial Institutions and Consumer Credit, got to work holding extensive hearings and drafting comprehensive legislation incorporating the FDIC's recommendations and making other needed changes to the system. The legislation that resulted from the efforts of the gentleman from Alabama passed the House with well over 400 votes in the 107th Congress and by an even larger margin in the 108th.

With the other body having twice failed to act on the legislation approved overwhelmingly by this House, we are back this year with high hopes that the third time will truly be the charm in enacting this critically important legislation. The reasons for reforming the deposit insurance system remain every bit as compelling today as they were almost 4 years ago when we first began to climb this mountain.

By merging the BIF and the SAIF into a single deposit insurance fund, H.R. 1185 will create administrative efficiencies and promote fundamental fairness in the system. By giving the FDIC more flexible tools for managing the insurance funds according to changing economic conditions, while at the same time ensuring that funds are returned to the industry in the form of rebates and credits when circumstances warrant, H.R. 1185 will promote economic stability and address the system's current bias toward charging excessive premiums at ``down'' points in the business cycle. All of these reforms command broad consensus among banking regulators and in the banking industry, as well as in the House.

On the issue of deposit insurance coverage levels, which have now gone a record 25 years without being adjusted for inflation, the legislation of the gentleman from Alabama provides for incremental increases that promote retirement security and help to keep municipal deposits in the communities where they originated to serve as a funding source for loans and other development initiatives.

All of us recognize that the increased coverage levels prescribed in the House bill are what have blocked its progress in the other body, and I have therefore indicated that I am willing to entertain compromise on that issue if it is the price of achieving the other important reforms contained in this legislation.

That said, it should also be noted that H.R. 1185's increase in base deposit

insurance coverage from $100,000 to $130,000 hardly constitutes a radical expansion of the deposit insurance safety net. If coverage had merely kept pace with inflation since 1980 when coverage was last updated, it would now be well over $200,000. Even going all the way back to the $40,000 coverage amount in effect in 1974 and indexing for inflation from that level yields a coverage level well above $140,000.

Let me conclude by commending Chairman Bachus for his leadership and persistence in pursuing this legislation over the course of three Congresses. I also want to thank our committee's ranking member, the gentleman from Massachusetts (Mr. Frank), who has championed several of the specific reforms contained in this bill and has acted throughout the process in a spirit of bipartisan cooperation that has become the hallmark of our committee's work in recent years.

Mr. Chairman, I reserve the balance of my time.

Mr. Chairman, I ask unanimous consent that the remainder of the committee amendment in the nature of a substitute be printed in the Record and open to amendment at any point.

Mr. Chairman, will the gentlewoman yield?

Mr. Chairman, I thank the gentlewoman for yielding, and I appreciate her cooperation in this area. I think all of us recognize some of the potential issues that are inherent in passage of Check 21.

It is also important to notice that about 1 percent of the checks today are being truncated, so we are early into the process here. It is also important to note that under the provision of Check 21, the Fed is empowered should they see an imbalance between the deposits and withdrawals to not only draw attention to it, but to deal with it.

The study, of course, will not be completed for about 2 years. And as a result I think it is important for the committee, as we have discussed before and I discussed with the ranking member, to have the committee continue to monitor the situation, and we would do so, and to that end, I would indicate to my friend, the gentlewoman from New York (Mrs. Maloney) that we would plan to hold an oversight hearing on that specific issue. I will be glad to work with the gentlewoman from New York (Mrs. Maloney) as far as the potential witnesses are concerned.

Mr. Chairman, will the gentleman yield?

Mr. Chairman, it occurred to me as I was listening to my friend from California, we could go back to the old days of giving out toasters for deposits. I would say that the system we have now, I have not heard of toaster promotion for a long time, mercifully, but it certainly seems to me that the consumer, saver, investor is a lot more sophisticated than they ever were and they will not be lured by toaster opportunities as opposed to depositing it into an institution where they feel comfortable that their deposit is indeed insured.

Mr. Chairman, the gentleman raises an excellent point. Our good colleague, the gentleman from Ohio (Mr. Gillmor), this is his contribution to this legislation, because as he shares the district that is next to mine, a number of small communities that have exceeded that amount of $100,000, they are under a fiduciary responsibility to have that money protected by the FDIC. And what it has done, of course, is drive some of that money out of the small communities and into larger communities so you cannot put that money to use in the community.

So I want to associate myself with the gentleman's remarks. I am glad the gentleman brought that issue up because it is a very important part of this legislation.

Mr. Speaker, on that I demand the yeas and nays.