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Deposit Insurance Bills Active in Senate, House

JANUARY 31, 2003


Deposit Insurance Bills Active in Senate, House

Comprehensive deposit insurance reform bills that include substantial increases in FDIC coverage levels have begun to move in the Senate and House.

In the Senate, Senators Tim Johnson (D-SD), Chuck Hagel (R-NE), Jack Reed (D-RI), Michael Enzi (R-WY), Debbie Stabenow (D-MI) and Wayne Allard (R-CO) introduced the "Safe and Fair Deposit Insurance Act of 2003," S. 229. This bill will raise FDIC coverage levels to $130,000 for individual accounts, $250,000 for certain retirement accounts, and up to $5 million for in-state municipal deposits. The new coverage levels also will be indexed for inflation going forward.

"This is a good bill that benefits consumers and strengthens our community banks," Senator Hagel said in a press release. Hagel said the bill will "… help address the liquidity issues our community bankers face by raising the coverage level of insured deposits."

Senator Johnson, who also was the primary Senate sponsor of deposit insurance reform legislation in the last Congress, said the bill will "strengthen local banks and make investors feel safe depositing their savings within their home communities." He called indexing "an absolutely critical component of this bill," adding, "This step will remove the coverage issue from the political process and prevent further erosion in the value of coverage."

In the House, Financial Services Committee Chairman Mike Oxley (R-OH) and Financial Institutions Subcommittee Chairman Spencer Bachus (R-AL) are seeking co-sponsors for a deposit insurance reform bill they plan to introduce the first week in February. This bill is expected to be identical to the one that passed the House last year by a vote of 408-18. It raises coverage levels to $130,000 for individual accounts, $260,000 for retirement accounts, and up to $2 million for municipal deposits.

In a letter to colleagues, Oxley and Bachus stressed the importance of higher coverage levels for retirement accounts. "Providing $260,000 in deposit insurance coverage for retirement accounts is critically important in an era when many Americans have accumulated retirement nest eggs that far exceed $100,000, and when, according to FDIC estimates, there is more than $200 billion in IRAs and Keogh accounts alone in the nation's banking system."

Both House and Senate bills smooth premium volatility by eliminating the 23 basis point "cliff" when the fund is undercapitalized and allow the FDIC to manage the reserve ratio within a broad range; institute a system of "rebates" when the insurance fund gets too high and grant "premium credits" to banks based on past contributions to the FDIC fund; address the "free rider" problem to make sure premiums are paid for new deposits in the system; and merge the bank and thrift insurance funds.

ICBA is strongly behind the deposit insurance reforms bills and we appreciate the efforts of these senators and congressmen.

The Treasury Department reportedly is circulating a draft deposit insurance bill for comment in the House and Senate. This bill reportedly merges the BIF and SAIF, provides for a risk-based assessment system, allows the FDIC to establish a reserve ratio within a broader range, provides for assessment credits when the reserve level exceeds the designated reserve level, and requires a study of the FDIC assessment base. Consistent with the Treasury's position in the last Congress, the bill reportedly does not call for increases in FDIC coverage levels nor for indexation of coverage levels to account for the effects of inflation.