ACB: Press Releases

Contact:	Robert Schmermund (202) 857-3104 Jim Eberle (202) 857-3145	Jim Eberle (202) 857-3145 (work) (703) 893-2593 (home) [email protected]	For Immediate Release May 16, 2001 #01-39
E-mail: [email protected]

ACB URGES CONGRESS TO FIX ‘FREE-RIDER’ PROBLEM AS FIRST STEP IN COMPREHENSIVE DEPOSIT INSURANCE REFORM

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WASHINGTON, D.C. — America’s Community Bankers urged Congress today to fix the “free-rider” problem — the influx of billions of dollars into insured bank accounts without paying premiums — as a critical first step in comprehensive reform of the federal deposit insurance system.

Testifying at a hearing of the House Financial Institutions Subcommittee, ACB Chairman David A. Bochnowski said ACB supports a ready solution to the problem: H.R. 1293, which would permit the Federal Deposit Insurance Corporation to impose a fee on existing institutions for excessive deposit growth. Bochnowski is also chairman and CEO, Peoples Bank, Munster, Ind.

“ACB believes that Congress should act quickly on this legislation to help ensure the continued strength of the FDIC and prevent the unnecessary diversion of billions of dollars away from community lending to homeowners, consumers and small businesses,” he said.

“By stabilizing the system, this bill would provide Congress an excellent starting point as it debates broader deposit insurance reform issues,” Bochnowski said. “In fact, H.R. 1293 is an excellent place to begin the comprehensive reform process. Other issues could be taken up later this year or included in H.R. 1293,” he added.

H.R. 1293 was introduced by Reps. Robert Ney (R-Ohio) and Stephanie Tubbs Jones (D-Ohio) and has 28 co-sponsors. The bill also would merge the Bank Insurance Fund and the Savings Association Insurance Fund and give the FDIC the flexibility in recapitalizing the merged fund over time if its reserve ratio falls below the statutory minimum of 1.25 percent.

Bochnowski said that ACB does not object to growth in deposits. In fact, the Ney-Tubbs Jones bill would not apply to relatively small, de novo banks or to institutions that acquire existing insured deposits. However, it would deal with securities firms that dilute the insurance fund’s reserve ratio by precipitously moving large amounts of funds from uninsured to insured accounts.

“Because of these high-growth programs, long-established and stable institutions in every state could be forced to pay premiums,” Bochnowski said. “These institutions collectively paid billions into the FDIC in the late 1980s and 1990s.” And in 1996, SAIF-insured institutions paid an additional $4.5 billion to recapitalize the fund.

“Those substantial payments brought the FDIC back to health. Now, these premiums are being used, in effect, to cover new deposits at a few rapidly growing institutions,” he added.

Bochnowski said he was pleased that the FDIC’s recommendations for comprehensive reform are consistent with ACB’s, though they differ in one key respect. Unlike the FDIC, “ACB does not believe that the highest-rated institutions should be required to pay premiums when there are ample reserves in the fund,” Bochnowski said. “Rather, as provided in the Ney-Tubbs Jones bill, ACB recommends that the FDIC have the authority to assess a special premium on the excessive growth of existing institutions (such as has occurred in banks owned by Merrill Lynch), if necessary to maintain an adequate reserve.”

Bochnowski said ACB agrees with the FDIC on merging the insurance funds, giving the FDIC flexibility to gradually recapitalize the fund in the event of a shortfall, establishing rebates based on past contributions and indexing the coverage level for inflation.

ACB recommended indexing from 1974, which would yield a coverage limit of about $135,000 today. ACB also supports a substantially higher coverage level for Individual Retirement Accounts, 401(k) accounts and similar retirement accounts.

ACB’s Testimony is ATTACHED.

America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com.

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