From: Bert Ely
[mailto:bert@ely-co.com]
Sent: Monday, March 13, 2006 7:13 AM
To: Comments
Subject: Large-Bank Deposit Insurance Determination Proposal - RIN 3064-AC98
To all concerned:
<>In addition to being quite costly to the banking industry, without
providing any benefit whatsoever to the FDIC, the FDICs large-bank deposit
insurance determination modernization proposal also poses a serious threat
to the financial privacy of individuals, businesses, and non-profit
organizations. The article below the horizontal line explains this threat.
The article was written for Financial Privacy Weekly, which is published by
the Center for Financial Privacy and Human Rights. The article was posted on
March 9, 2006, on www.libertycoalition.net.
Thank your for your consideration of the following article as it relates
to this most important ANPR. Please email or call (703-836-4101) if you have
any questions this proposals threat to financial privacy and civil
liberties.
Bert Ely
Ely & Company, Inc.
Alexandria, Virginia
703-836-4101
bert@ely-co.com
__________________
FDIC's Account-Linking Proposal Threatens Financial Privacy
by Bert Ely
<> The Federal Deposit Insurance Corporation (FDIC) has issued for
comment an Advance Notice of Proposed Rulemaking (ANPR) that will threaten
financial privacy if it becomes an official regulation. This regulation
would cost the banking industry millions of dollars annually to implement
without delivering any benefit whatsoever to the FDIC. It is a solution
looking for a problem to solve, which raises this question: What is the real
rationale for this proposal?
Called the "large-bank deposit insurance determination modernization
proposal," this seeming stab at increasing the efficiency with which the
FDIC applies federal deposit insurance limits in failed banks in fact
addresses a non-problem -- large banks rarely fail and when they do, the
FDIC has ample time to determine which deposits are insured. Instead, this
proposal represents the first step towards the federal government
aggregating banking information across the entire U.S. banking system.
<> Initially, the country's largest banks and savings institutions (145, as
of last June 30) would have to link together in their computer databases all
accounts held in a bank by a single customer. Possibly this linkage would
require the use of "a unique identifier for each depositor" and it might
even require the largest 10 or 20 banks to maintain this account linkage on
a real-time basis. For those interested in learning more, the ANPR was
published in the Federal Register on December 13, 2005, at pages 73652 to
73663.
Once all accounts in a bank are linked by owner, then the next obvious steps
are to require all banks to link their accounts by depositor and then to
link accounts across banks. The "unique identifier" the FDIC envisions
(think Social Security number or business tax ID number) could be the device
for linking accounts across banks. Once in place, and with on-line access to
bank databases (almost all of which already are on-line), the FDIC, or
another government agency working through the FDIC, could at any time access
all U.S. bank accounts of an individual, a business, or a non-profit
organization, such as an advocate of financial privacy.
While the FDIC has only proposed to aggregate bank deposit balances, once
account linkages have been established, then it becomes quite easy to
monitor transactions in each account -- deposits made, checks paid, wire
transfers to other parties, etc. -- in the same manner that the National
Security Agency now screens electronic communications of all kinds in the
usually futile attempt to identify evildoers. The reader can easily envision
where this leads.
The ANPR states that "the FDIC is aware of the potential privacy issues
surrounding the holding of depositor information and has in place strict
safeguards to protect these data." The FDIC can provide absolutely no
assurance, though, that those safeguards won't be violated when it suits the
government to do so. Once data has been gathered, or can easily be accessed,
then the ability to tap into that data often becomes too tempting.
Although the ANPR comment period closes on March 13, it is not too late to
sink this data-gathering proposal before it gains much headway. It will take
a few months for the FDIC to digest the ANPR comments and then publish a
Notice of Proposed Rulemaking, which if adopted by the FDIC Board of
Directors, would become an official regulatory requirement for the banking
industry. Not only must bankers say "No!" to this proposal, but so, too,
should everyone else.<>
Bert Ely is a financial institutions and monetary policy consultant in
Alexandria, Virginia. He has been analyzing deposit-insurance issues and
predicting bank failures for over 30 years.