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Letters to the Hill

ICBA Letter on H.R. 1185

April 25, 2005

Dear Representative:

This week, the House Financial Services Committee will mark-up H.R. 1185, the Federal Deposit Insurance Reform Act of 2005, introduced by Representatives Bachus, Oxley and Frank, among others. This pro-consumer legislation has strong bi-partisan support not only in the Committee, but also in the full House, which passed an identical bill in the last Congress by a vote of 411-11.

Despite this overwhelming level of support, the Senate failed to take up the bill last year over objections by Senate Banking Committee Chairman Shelby. We are confident that given the opportunity to vote, the Senate margin of victory would be similar to the House vote.

It is important to send another strong signal to the Senate to pass this important legislation to bring the Federal Deposit Insurance system into the 21st Century. Deposit insurance is the lifeblood of our nation's banking system. It promotes stability in the banking system by providing a safe and secure depository for individuals and small businesses. And it supports local communities by enabling financial institutions to convert those deposits into consumer and small business loans, community development projects, mortgages, education assistance, small business start-up funds, and other worthwhile purposes.

Unfortunately, deposit insurance, which hasn't been adjusted in 25 years, has lost more than half its value in that time due to inflation. Many small businesses and other depositors are reluctant to keep all of their money in local banks because coverage levels simply aren't high enough. In the event of a bank failure, these depositors could lose all or a portion of their deposits over the insurance limit.

H.R. 1185 will help address this problem by making it easier for small businesses, local governments and municipalities, and consumers, to keep more of their money at home where it can be put to work in the community. That is why ICBA strongly supports the provision in H.R. 1185 that would increase coverage limits for individual accounts to $130,000 and index future coverage limits to inflation. At the very minimum, deposit insurance coverage levels should be adjusted at regular intervals on the basis of an appropriate index.

The ICBA also strongly supports provisions in the bill that would:

  • End the 23 basis point premium "rate cliff" that occurs when the reserve ratio of insured deposits to fund reserves falls beneath 1.25 percent for more than one year.
  • Create a range within which the reserve ratio can float.
  • Double coverage limits for certain types of IRAs and 401(k)s.
  • Increase coverage limits for municipal deposits.
  • Merge the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF).

These reforms are badly needed and long overdue. Congress should not wait until a crisis occurs to enact them. Please vote NO on any amendments to eliminate or reduce the coverage level adjustments in this bill, and vote YES on final passage.

Sincerely,

Camden R. Fine
President and CEO






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