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The Rookie

SEPTEMBER 20, 2002


Banker Update: The Rookie

Treasury under secretary for domestic finance Peter Fisher described himself as a rookie in a formal presentation on September 18, entitled "My Rookie Year." The apparent purpose of his speech was to lay blame on community banking for the failure of deposit insurance reform legislation to pass the Congress. Like NFL rookie coach Steve Spurrier's effort on Monday Night Football, we didn't judge it a winning performance. (Of course it is our hope that the Washington Redskins win the Superbowl.)

Legislation could have been enacted months ago, Mr. Fisher said, "if only those relentlessly pursuing coverage increases had just relented." Mr. Fisher ridiculed the arguments in favor of deposit insurance increases as "unencumbered by any basis in fact" and suggested that proponents of coverage increases are arguing their point for nothing more than the "sport of having an argument."

He stressed that Treasury and community bankers agree on "95%" of the deposit insurance reform issues such as removing the hard 1.25% target, giving FDIC greater discretion to charge premiums based on risk, and merging the funds to better diversify risks-but not on coverage. "Now we have expressed an opinion about higher coverage limits that differs in a material way from the opinion of some folks in this town," Mr. Fisher said. "What amazes me is how much creativity and imagination have gone into constructing the arguments in favor of raising coverage limits and how much effort has gone into ignoring the facts."

Permit us to describe our view of the facts:

An excellent bill that includes all of the aspects of reform supported by the Treasury, as well as higher coverage limits, was passed by the House of Representatives by an overwhelming 408-18 vote under the superb leadership of Chairman Oxley and subcommittee chairman Rep. Spencer Bachus, with the support of House Speaker Hastert and Minority Leader Gephardt. The ICBA had compromised on the general coverage level-we originally asked for $200,000 but settled for $130,000.

It was the Treasury Department's decision to oppose this bipartisan compromise and go to war against any increase in existing coverage levels, even indexing the current $100,000 limit for future inflation. Also, can community bankers really be responsible for the forward legislative progress of this bill being stymied by Senate politics? For the Senate being so closely divided it has problems getting anything done? For the fact that Senator Tim Johnson (D-SD), sponsor of comprehensive, balanced deposit insurance reform, is #1 on the Republicans' most-wanted list? All in all, not a very favorable climate for Senate passage of the deposit insurance bill. The bottom line Treasury position remains, then, to let inflation continue to wither away federal deposit insurance protections.

Chairman Oxley has signaled that if politics help kill the bill this year, it will be very high on his agenda in the next Congress.