ICBA - Publications - Deposit Insurance Reform Bills Introduced in Congress

Deposit Insurance Reform Bills Introduced in Congress

FEBRUARY 15, 2002



A powerful, bipartisan group of Senate Banking Committee members, led by Financial Institutions Subcommittee Chairman Tim Johnson (D-South Dakota), introduced a comprehensive deposit insurance reform bill (S. 1945) on Valentine's Day. Joining as original cosponsors were Chuck Hagel (R-Nebraska), Mike Enzi (R-Wyoming) and Jack Reed (D-Rhode Island). FDIC Chairman Don Powell immediately issued a press release noting they "deserve tremendous credit for developing comprehensive legislation that proposes solutions to problems in the current system and updates deposit insurance for the future." We concur.

S. 1945 is very similar to H.R. 3717, introduced earlier in the week by Rep. Spencer Bachus (R-Alabama), who chairs the Financial Institutions Subcommittee of the House Financial Services Committee. Original cosponsors include House Financial Services Committee Chairman Mike Oxley (R-Ohio) and 15 other Republicans. You have been sent a separate lobbying request on the Bachus bill, which is scheduled to be marked up in early March.

Both bills would merge the BIF and SAIF, and call for an increase in general coverage to $130,000. S. 1945 would index this amount for inflation every five years, rounded up or down to the nearest $10,000 increment (but never lower). H.R. 3717 would provide indexation every 10 years, rounded down to the nearest $10,000 increment (but never lower).

Higher coverage of retirement accounts (IRAs, Keoghs and certain other plans) is also envisioned in both bills. S. 1945 would set this coverage at $250,000, as supported by Chairman Powell in testimony last fall. H.R. 3717 would set it at double basic coverage (i.e., $260,000).

S. 1945 also would provide additional coverage of in-state municipal deposits. Regular coverage would remain at 100 percent until $130,000, with amounts above that 80 percent covered by FDIC to a ceiling of $5 million per account. Coverage of the remaining 20 percent would be subject to existing state law. H.R. 3717, meanwhile, would provide 100 percent coverage of in-state municipal deposits up to an institution's total equity capital position. Please consider this municipal deposit language a work in progress. It has already caused controversy.

Both bills also would repeal the hard 1.25 percent reserve ratio, replacing it will flexible 1.00-1.50% range. This will allow the FDIC to charge small, steady premiums¾a far more preferable scenario than premiums as high as 23 basis points currently. You can bet that larger banks will scream, but most community bankers long ago realized that this free lunch so beneficial to the free riders could not go on forever. As Chairman Powell said about S. 1945, the legislation will create a "stronger, more effective deposit insurance system," and part of that equation are small, steady premiums¾which for many banks will be offset by assessment credits and potential rebates.

The top ICBA leadership met with FDIC Chairman Powell and Rep. Bachus on Wednesday and Thursday. Passing major pro-community banking legislation is never easy. Strong, sustained community banking grass roots lobbying NOW is essential and should involve all elements in your communities. As President Bush said, "Let's roll."