ICBA - Publications - The Good, the Bad and the Ugly

The Good, the Bad and the Ugly

NOVEMBER 2, 2001



Let's start with the ugly. An October 29 page one story in the daily trade publication American Banker announced that Citigroup Inc.'s arm, Salomon Smith Barney ("Solly"), is expanding the deposit insurance program they are offering their customers. Since Citigroup owns at least ten separate banks, Solly will be offering customers $1 million in coverage by sweeping funds into the Citigroup banks. Solly previously had been offering $600,000 per individual. Since June 30, Solly has moved an additional $8.1 billion under the FDIC insurance umbrella, bringing its total FDIC exposure from these sweeps to $32.08 billion.

Merrill Lynch, which is offering $200,000 in individual coverage, has an exposure of $47.3 billion. Neither firm has paid a nickel for this deposit insurance coverage. In terms of the BIF reserve ratio, the Salomon inflow alone has knocked down the reserve ratio by two basis points-moving the whole banking industry closer to mandatory FDIC premiums.

Turning to the bad, SunTrust continues to lead the parade of primarily larger banks that want to divert some $500 million from the SAIF fund to their bottom lines. FDIC Chairman Powell has told the Congress that the SunTrust amendment "would weaken the deposit insurance system and dismantle carefully crafted legislation in a way that would unjustly enrich a limited number of institutions." This amendment would lower the SAIF reserve ratio by five or six basis points. The ACB joins the ICBA in strongly fighting efforts to attach this amendment to the economic stimulus bill, while the ABA has been deafeningly silent.

Now for the good. Senator Tim Johnson (D-South Dakota), chairman of Senate Banking's Financial Institutions subcommittee, continues his push for a comprehensive reform of the deposit insurance system, including substantial increases in coverage levels for all banks. In hearings held on November 1, Senator Johnson convened a witness panel that strongly supported increasing retirement account coverage. In his opening statement, Senator Johnson conveyed his discussions with FDIC Chairman Don Powell, noting that Chairman Powell is urging that deposit insurance coverage for retirement accounts be raised to $250,000.

Another witness took to task Chairman Greenspan's premise that anyone with $100,000 in savings is well off and that the well off don't need increased coverage levels. This witness bluntly and correctly stated that $100,000 in retirement savings is simply insufficient to support most retired individuals, especially given increased life expectancy and soaring medical costs. The witness also noted that "increased insurance limits would reduce the number of retirees forced to choose between insured deposits and banking with someone they trust." Like the nation's thousands of community banks.

Since the Federal Reserve and the Treasury are totally tone deaf on the need to increase and index coverage levels, community bankers must continue to reach out to their elected representatives and make their case.