FDIC Federal Register Citations

From: Sharon Hill [mailto:shill@gaappleseed.org]
Sent: Thursday, November 13, 2008 9:19 AM
To: Comments
Subject: Comments regarding proposed Temporary Liquidity Guarantee Program

Thank you for this opportunity to comment on the proposed Temporary Liquidity Guarantee Program (TLGP). I am writing now as a member of the Board of Trustees of the Georgia Bar Foundation, a 501(c)(3) organization named by the Supreme Court of Georgia in 1983 to receive Interest on Lawyer Trust Accounts (IOLTA) funds to support civil legal services for the poor in Georgia.

I learned only today of the proposed TLGP and of tomorrow’s deadline for comments; therefore, my comments are necessarily brief. In our current poor economic climate, many are fearful about the security of their bank deposits. The decision to increase FDIC insurance coverage, from $100,000 to $250,000 per account, was welcomed by many as a step in the right direction to calm fears. The new proposals of the TLGP, however, have unintentionally created new fears that could have a significant and adverse impact on IOLTA funds that are needed now more than ever to support legal representation for poor people faced with serious civil legal needs such as fighting illegal home foreclosures, evictions and other serious problems made even worse because of the financial crisis impacting every segment of our economy.

In providing for unlimited FDIC insurance on non-interest-bearing accounts, which the TLGP proposes, the TLGP has introduced a new fear for those whose accounts exceed the $250,000 limit. Those who were previously comforted with the increase to $250,000 for interest-bearing accounts, now fear for the deposit amount in excess of $250,000 and wonder if the very low interest earned on those interest-bearing accounts under current interest rates is worth the worry that the excess is vulnerable to loss in the event of bank failure. Knowing that non-interest-bearing accounts would have unlimited FDIC insurance, fearful depositors would be likely to transfer their deposits to new, non-interest-bearing accounts to avoid the worry. Such an outcome might not seem to impact poor people, but when one understands how IOLTA accounts work, one immediately can see the unintended threat that the proposed TLGP poses for charitable funding of civil legal services for low-income citizens throughout the country, let alone in the state of Georgia.

Lawyers, who have fiduciary responsibility for the temporary safekeeping of client funds pending disbursement, are acutely sensitive to the relative security, or insecurity, that the proposed TLGP would introduce into the equation. A lawyer who has received a settlement on behalf of a number of clients in an amount in excess of $250,000 would be hard pressed to explain why he or she allowed that excess to be lost in a bank failure, as unlikely as that may be, when the lawyer knew or should have known about the unlimited insurance protection afforded non-interest bearing accounts. Clearly, lawyers cannot leave client funds in accounts that have any exposure, no matter how small, when a risk-free alternative is readily available.

The impact on IOLTA, should the proposed TLGP be approved, would be devastating and would gut a significant source of charitable funding for civil legal services in our state and in our nation.

To avoid this outcome, I urge the FDIC, instead, to include IOLTA accounts with the other accounts that would be covered with unlimited FDIC insurance.

Thank you.

Sharon Hill