Title: Congressional Outlook: FDIC Redo in '02? (Briefing)
Abstract: In cross-country equestrian competitions, riders have three tries to urge their mounts over the obstacles before the fence judge can throw them off the course. In the sport of legislative development, you often get more than three tries. Sometimes, in fact, you can try forever. But every now and then, a bill makes it over all hurdles and becomes law. It is beginning to look like the second session of the 107th Congress may be that time for bankers who favor some degree of comprehensive federal deposit insurance reform. Hill watchers predict that legislation could be introduced in late February or early March. There seems to be growing sentiment that after years of talking about change, it is time to get it done. FDIC Chairman Don Powell, who in an interview in last month's ABABJ said he did not want insurance reform to get in the way of wartime legislation, has recently indicated he is ready to get under way. I'm going to be passionate about this after Jan. 1, Powell told bankers at ABA's Government Relations Council in December. What's more, while the events of Sept. 11 delayed things in the public arena a bit, more has been going on behind the scenes. Staff representatives of the House and Senate financial services committees and FDIC representatives have been meeting privately for some time. Various members of Congress have stepped forward to take leadership positions on the issue. And ABA has been integrally involved in the behind-the-scenes debate. On the other hand, this is a situation where the banking industry is not coming to Congress for a must-have solution and thereby having to accept unpalatable tradeoffs to get it. A skeleton for reform Congress always has a trick or two up its sleeve, so ironclad predictions are out. What follows is a rundown of what ABA lobbyists expect the proposed legislation to look like. (Note that ABA does not support all the likely provisions. See the accompanying table for a summary of positions.) Details on many issues remain to be hammered out and ABA experts point out that there are accounting implications to some of the likely elements of the bills that must be considered. Already, ABA has a group of bankers looking at the rebate system described below. * Fund merger--A done deal. If there is to be a comprehensive bill passed, the Savings Association Insurance Fund and the Bank Insurance Fund will be combined. Though the center of a bitter fight a few years ago, it will not raise blood pressue on Capitol Hill these days. * Elimination of the cliff--This is considered another done deal, Under current law, if a deposit insurance fund can't be brought back to its required ratio of fund assets to insured deposits (1.25%) within one year, FDIC must impose a 23-basis-point-- or more--assessment. This all-or-nothing approach would be eased in some fashion. The cliff has been of greater academic concern in light of several factors. These include: 1. large brokerage firms' transferring nondeposit funds into insured deposit accounts that have been engineered to produce high insurance levels--a matter of billions of dollars; 2. the rise in deposit levels due to concerns over Sept. 11 and the stock market; and 3. a vague concern about the possibility of a surge in troubled banks as the economy turns down. A related issue is whether the 1.25% ratio itself should be changed or eliminated. FDIC Chairman Powell would like to see a statutory ratio requirement dropped, with FDIC empowered to set-and amend-its own required ratio. * Deposit insurance coverage-Bankers still holding out hope for a general $200,000 coverage ceiling will be disappointed. With the Federal Reserve, the FDIC, and Senate Banking Committee ranking member Phil Gramm dead-set against an increase, it's considered a nonstarter on the Hill. However, indexing of the deposit insurance ceiling, to prevent its value from eroding through inflation, has much wider support. …
Publication Year: 2002
Publication Date: 2002-01-01
Language: en
Type: article
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