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,…
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.