ICBA - Publications - The Two National Treasures--Very Different Views

The Two National Treasures--Very Different Views

MARCH 15, 2002



Some 30 years ago, at the height of the Cold War and during a climate of economic stagflation, two relatively young, not yet Washington battle-tested men -L. William Seidman and Alan Greenspan-helped run the economic policy of the Ford administration.

Today, these giants are facing off on a key public policy issue before the American financial system. Both spoke before the just-concluded ICBA annual convention in Hawaii. Both addressed the American economy, and Bill Seidman joined previous speakers FDIC Chairman Don Powell and former FDIC Chairman Donna Tanoue in emphasizing the importance of comprehensive FDIC reform.

Chairman Greenspan, though, does not believe in the deposit insurance increase provisions of the comprehensive FDIC reform package pending before the Congress. In his recent letter to the House Financial Services Committee, the Chairman opposed any increase in coverage levels and even nixed indexation.

Former FDIC Chairman Seidman found it amazing that Greenspan "takes such strong positions without listening to those advocating coverage change." He mischievously suggested that the Greenspan-Gramm-Summers position against modernizing the FDIC deposit insurance reform product approaches "an axis of evil."

Seidman further took on the argument that increased coverage levels erode free market discipline by noting that no government agencies interfere more with free market forces than the Federal Reserve. He emphasized that deposit insurance coverage of commercial banks never cost the government a penny. He noted that eroding coverage levels were driving banks to become more dependent on FHLBank advances.

Turning to too-big-to-fail, the regulator who handled the worst domestic U.S. financial crisis since the Great Depression-the S&L crisis-bluntly stated that "too-big-to-fail applies around the world" and that no country has "ever closed its largest banks." He reminded the community banking audience that those who deposit money have this fact in mind. He urged community bankers to fight for a more level playing field, which higher coverage levels would bring.

Obviously, the too-big-to-fail banks support the Greenspan position of no coverage increases and no indexation. This will enhance their already dominant position. And it is also a fact that as the industry concentrates, the regulatory and supervisory power of the Federal Reserve multiplies-at the expense of the FDIC and the states.

The battle is joined. Community banking's stake in it is enormous. The FDIC stake is even greater.