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Federal Deposit
Insurance Corporation

Each depositor insured to at least $250,000 per insured bank

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Speeches, Testimony & Articles


March 4, 2003

Oral Statement

Chairman Oxley, Representative Frank, and members of the Committee, it is a pleasure to appear before you this afternoon to discuss deposit insurance reform. Deposit insurance reform is the top priority of the FDIC this year, and we appreciate the Committee's continuing interest in pursuing reform.

The fact that this Committee was able to write legislation last year that attracted more than 400 votes in the House of Representatives was an admirable accomplishment. I especially want to thank again Chairman Oxley, Representative Frank, Representative Bachus and Representative Waters for introducing H.R. 522 and to thank their colleagues who are supporting the legislation. H.R. 522 is a reflection of the time and hard work the Committee has spent on these issues over the last year. When the FDIC has raised issues, the Committee has been more than willing to listen to our concerns and work with us. That continues to this day on both sides of the aisle and we look forward to continuing working with you to get the best possible legislation for everyone concerned.

An effective deposit insurance system contributes to America's economic and financial stability by protecting depositors. For more than three generations, our deposit insurance system has played a key role in maintaining public confidence. While the current system has been effective to date, we are committed to working with you - and the financial services sector - to improve it. H.R. 522 incorporates all of the major reform recommendations put forward by the FDIC and we appreciate the Committee's recognition of the importance of these issues.

Today I want to emphasize three elements of deposit insurance reform that would do just that: one, merging the Bank Insurance Fund and the Savings Association Insurance Fund; two, improving the FDIC's ability to manage the merged fund; and, three, effectively pricing premiums to reflect risk.

First - merging the funds. As most of you know, the banking and thrift crisis of the last decade left the FDIC administering two deposit insurance funds - one to guarantee bank deposits and the other to guarantee thrift deposits. But now, ten years later, industry trends have left no meaningful distinction between the two. We should merge the funds into a single Deposit Insurance Fund that will be stronger and will treat all deposits the same.

Second - improving the FDIC's ability to manage the merged fund. The FDIC is prohibited from charging any premiums to most banks in good economic times. That means that during difficult economic times, the FDIC is forced by law to levy steep premiums on the industry. Doing so would further stress our country's financial institutions at the very time when - as a matter of economic necessity - we would be asking banks to strengthen their balance sheets and extend credit. Today, we announced that the reserve ratio of the BIF increased from 1.25 to 1.27 over the last quarter and the SAIF reserve ratio decreased from 1.39 to 1.37. Now is the perfect time to address deposit insurance reforms - the industry is strong and so are the insurance funds.

Third - effectively pricing premiums to reflect risk. Under current law, safer banks are forced to subsidize riskier banks. This is unfair.

Just as unfair is the fact that new deposits are able to enter the system in good times without paying for deposit insurance. Almost 1,000 banks have entered the system since 1996 without paying any premiums for federal deposit insurance.

We have an opportunity, and in my view, a responsibility to the American people to remedy these problems.

The FDIC recommends the following:

  • Eliminating the hard targets and triggers in the current law.

  • Allowing the FDIC to manage the size of the insurance fund within a range.

  • Permitting the FDIC to charge steady, risk-based premiums to allow the insurance fund to build up in good times and be drawn down during bad times.

  • Permitting the FDIC to charge all insured institutions appropriately for risk at all times, so that safer banks do not unnecessarily subsidize riskier banks.

These methods for pricing and managing financial risk are best practices in the private sector and we would like to manage our system in much the same way. With some flexibility in fund management, we can alleviate the problems with the current system while strengthening our ability to deal with any future crisis. We are not asking for absolute discretion. We recognize the need for accountability and will work with you to insure a system that provides it.

The reforms I just described are critical to improving the deposit insurance system. Another issue that has been the subject of much discussion is deposit insurance coverage. Some have said coverage should be higher; some lower. Our position is simply to maintain its value through indexing.

Deposit insurance reform is not about increasing assessment revenue from the industry or relieving the industry of its obligation to fund the deposit insurance system. Rather, the goal of reform is to distribute the assessment burden more evenly over time and more fairly across insured institutions. This is good for depositors, good for the industry and good for the overall economy.

Again, we appreciate the Committee's leadership on deposit insurance reform and look forward to working with you to get the job done this year.

I look forward to your questions.


Last Updated 03/05/

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