Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 3330) to amend the Federal Deposit Insurance Act and the Federal Credit Union Act to provide more effective reviews of losses in the Deposit Insurance Fund and the Share…
Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 3330) to amend the Federal Deposit Insurance Act and the Federal Credit Union Act to provide more effective reviews of losses in the Deposit Insurance Fund and the Share Insurance Fund by the Inspectors General of the several Federal banking agencies and the National Credit Union Administration Board, and for other purposes.
Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days within which to revise and extend their remarks on this legislation and to insert extraneous material thereon.
Mr. Speaker, I yield 5 minutes to the chief sponsor to this bipartisan legislation, a strong proponent in this Congress for tougher oversight, the gentleman from Ohio (Mr. Driehaus).
Mr. Speaker, I yield myself 4 minutes.
As a former district attorney for 12 years and chairman of the House Financial Services Oversight and Investigation Subcommittee, one of my priorities is to make sure that our Inspectors General have all of the tools and the resources they need to continue and improve their important oversight work.
In January, the IGs for the Treasury, Fed, and FDIC wrote to request that Congress raise the material loss review, or MLR, threshold so they could focus on other high-priority areas of potential waste, fraud, and abuse.
The National Credit Union Administration IG later made a similar request, Mr. Chairman. In addition to a higher threshold, the IGs suggested adding a requirement that for failed banks falling below the new threshold, an initial assessment still be taken to ``ensure that unusual or potentially significant situations are not missed.''
During an O&I hearing we held on this issue in May, I was disturbed to learn that without a modernized MLR system, the current system would limit the IGs' ``ability to effectively oversee many of the new and significant programs and initiatives that the Federal banking agencies are undertaking to address current economic conditions.'' We must address this problem.
I commend Congressman Driehaus from Ohio, a member of our Oversight Subcommittee, for drafting a bipartisan bill that will do just that. I also thank our colleagues on the other side of the aisle, Congressman Lee of New York and our O&I Subcommittee ranking member, Congresswoman Biggert of Illinois, for their hard work in drafting this bill. The improved oversight by the Financial Inspectors General Act will put in place a $200 million MLR threshold for bank IGs and $25 million for the credit union IGs with new, stronger protections that will ensure proper oversight is conducted of any failed institution that costs even a dollar.
In a letter dated July 17, Jon Rymer, the FDIC's Inspector General, commented on the bill, writing: ``I believe this legislation is a reasonable and prudent compromise that will our workload but preserve meaningful, independent oversight by my office, as well as other Inspectors General tasked with similar reviews.''
And I couldn't agree more, and I urge my colleagues to support H.R. 3330 to improve oversight of our financial agencies.
I reserve the balance of my time.
Mr. Speaker, I include for the Record letters from the Inspectors General on these issues.
January 9, 2009.
Hon. Barney Frank,
Chairman, Committee on Financial Services, House of
Representatives, Washington, DC.
Dear Chairman Frank: We are writing to request that the
Congress consider increasing the threshold for conducting
material loss reviews (MLR) on failed financial institutions.
The current $25 million threshold has been in effect for
about 25 years and, in light of the current economic
environment, is no longer serving as a reasonable measure of
materiality or a meaningful trigger point for an Office of
Inspector General (OIG) review of the failed financial
institution. If this current threshold remains in effect, we
anticipate that the projected volume of MLR work--and the
time and resources that this work demands--will limit the
OIGs' ability to effectively oversee many of the new and
significant programs and initiatives that the Federal banking
agencies are undertaking to address current economic
conditions.
Section 38(k) of the Federal Deposit Insurance Act mandates
OIG reviews of certain material losses to the Deposit
Insurance Fund (the Fund) when federally supervised banks
fail. In general terms, the purpose of the MLR is to
determine the causes for the institution's failure and
resulting loss to the Fund, and assess the banking agency's
supervision of the failed institution. A loss is considered
material if the loss is estimated to exceed $25 million or 2
percent of the institution's total assets at the time the
Federal Deposit Insurance Corporation (FDIC) was appointed
receiver. The Act further requires that the OIG report be
completed within 6 months after it becomes apparent that a
material loss has been incurred.
As of today, the OIGs from the FDIC, Department of the
Treasury, and the Board of Governors of the Federal Reserve
System are performing a total of 18 MLRs, with projected
losses ranging from $36 million to $8.9 billion. At the
current threshold and as economic conditions continue to
worsen, we anticipate the number of reviews to increase. As
we are actively conducting these reviews, we are discovering
that MLRs at the lower end of the threshold appear to provide
little, if any, new perspectives or insights regarding the
cause of the failure beyond what we initially discerned at
the closure. We are, nevertheless, bound by professional
standards to invest time and resources to conduct a thorough
review of each individual failure. Expending our scarce
resources on these reviews limits our ability to oversee the
new initiatives that the banking agencies are undertaking to
deal with the current economic crisis affecting open
financial institutions.
We believe that increasing the MLR threshold would better
serve the Congress by providing the OIGs with increased
flexibility to refocus scarce resources to the wide-ranging
programs and initiatives that the agencies are now managing,
while continuing to ensure that significant failures receive
an appropriate, in-depth review. As such, we recommend
modifying the threshold for a material loss to an amount
between $300 and $500 million. The $500 million figure is the
materiality threshold used by the Government Accountability
Office (GAO) when conducting the Fund's financial statement
audit, and has proven appropriate for that purpose over the
years. Looking at the current inventory of 18 MLRs, only six
would have been required with a $300-$500 million threshold.
To ensure that unusual or potentially significant situations
are not missed, we also recommend language that would allow
the OIG to initiate an MLR of an institution with a projected
loss below the increased threshold, should circumstances
(i.e., indications of fraud) warrant.
Last year, we participated in a discussion initiated by one
of your professional staff members on the merits of
increasing this threshold, and were encouraged to raise this
issue if circumstances warranted. We believe such
circumstances have arrived. We are sending a similar letter
to the Committee's Ranking Member and the Chairman and
Ranking Member of the Senate Committee on Banking, Housing
and Urban Affairs to share our concerns.
Thank you for considering our request to amend Section
38(k) to increase the MLR threshold. We would welcome the
opportunity to discuss our concerns and possible solutions
with you in more detail.
Sincerely,
Jon T. Rymer,
Inspector General, Federal Deposit Insurance Corporation.
Eric M. Thorson,
Inspector General, Department of the Treasury.
Elizabeth A. Coleman,
Inspector General, Board of Governors of the Federal
Reserve System.
Thank you for making that clear. Thank you for the colloquy.
Mr. Speaker, I reserve the balance of my time.
Mr. Speaker, I yield 1 minute to the gentleman from Ohio (Mr. Driehaus) to close.
Mr. Speaker, I yield back the balance of my time.