[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
                       H.R. 522--FEDERAL DEPOSIT
                      INSURANCE REFORM ACT OF 2003

=======================================================================

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                           FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 4, 2003

                               __________

       Printed for the use of the Committee on Financial Services

                            Serial No. 108-6



86-853              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska              PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana          MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice         JULIA CARSON, Indiana
    Chairman                         BRAD SHERMAN, California
RON PAUL, Texas                      GREGORY W. MEEKS, New York
PAUL E. GILLMOR, Ohio                BARBARA LEE, California
JIM RYUN, Kansas                     JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio           DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois         CHARLES A. GONZALEZ, Texas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California                 RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois               KEN LUCAS, Kentucky
MARK GREEN, Wisconsin                JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania      WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut       STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona             MIKE ROSS, Arkansas
VITO FOSELLA, New York               CAROLYN McCARTHY, New York
GARY G. MILLER, California           JOE BACA, California
MELISSA A. HART, Pennsylvania        JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia  STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio              BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota           RAHM EMANUEL, Illinois
TOM FEENEY, Florida                  DAVID SCOTT, Georgia
JEB HENSARLING, Texas                ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey             
TIM MURPHY, Pennsylvania             BERNARD SANDERS, Vermont
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona

                 Robert U. Foster, III, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 4, 2003................................................     1
Appendix:
    March 4, 2003................................................    29

                                WITNESS
                         Tuesday, March 4, 2003

Powell, Hon. Donald E., Chairman, Federal Deposit Insurance 
  Corporation....................................................     6

                                APPENDIX

Prepared statements:
    Clay, Hon. Wm. Lacy..........................................    30
    Emanuel, Hon. Rahm...........................................    31
    Gillmor, Hon. Paul E.........................................    32
    Hinojosa, Hon. Ruben.........................................    34
    Israel, Hon. Steve...........................................    35
    Royce, Hon. Edward R.........................................    36
    Powell, Hon. Donald E........................................    37


                       H.R. 522--FEDERAL DEPOSIT

                      INSURANCE REFORM ACT OF 2003

                              ----------                              


                         Tuesday, March 4, 2003

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 2:10 p.m., in Room 
2128, Rayburn House Office Building, Hon. Michael Oxley 
[chairman of the committee] presiding.
    Present: Representatives Oxley, Leach, Bereuter, Baker, 
Bachus, Royce, Kelly, Ryun, Manzullo, Biggert, Shays, Tiberi, 
Kennedy, Hensarling, Garrett, Brown-Waite, Barrett, Harris, 
Renzi, Maloney, Meeks, Inslee, Hinojosa, Lucas, McCarthy, Baca, 
Matheson, Miller, Emanuel, Scott and Davis.
    The Chairman. [Presiding.] If the committee would please 
come to order.
    Today, we are meeting to discuss legislation sponsored by 
my colleague and Financial Institutions Subcommittee Chairman 
Spencer Bachus, the Federal Deposit Insurance Reform Act of 
2003. Chairman Bachus' legislation is the result of a thought-
out, deliberative process laying the groundwork for reform of 
the nation's deposit insurance system. Last year, we had a 
great deal of success with the exact piece of legislation that 
we will be discussing today, the greatest success being the 
more than 400 votes the bill received on the House floor last 
year.
    Today's hearing will focus on the views of FDIC Chairman 
Don Powell. Chairman Powell was instrumental last year in 
developing and passing comprehensive deposit insurance reform 
legislation out of the House. This year, with Chairman Powell's 
help, I am confident we can get that bill signed into law.
    Today's hearing could not have occurred at a more 
appropriate time in the financial and economic cycle. While the 
deposit insurance system is the strongest it has ever been, it 
may be tested as the nation is confronted with an uncertain 
economic climate. Even so, I say with confidence that both the 
industry and the deposit insurance system are sound and the 
economic recovery, when it occurs, will be in large part 
determined by the ability of the financial services sector to 
remain vibrant and strong. A sound and responsive deposit 
insurance system is at the core of such vibrancy and strength.
    The FDIC faces critical challenges, chief of which is the 
need to reform deposit insurance in a way that ensures that the 
system is equipped to respond to new and emerging risks. The 
FDIC must continue to adapt to address the challenges and risks 
posed by the post-Gramm-Leach-Bliley environment, the 
integration of global financial service markets, and the 
interconnectedness of these events with our communities.
    This is a tall order that will require the help of the 
Congress to provide the necessary legislative tools and the 
agency to make the necessary structural and program changes. 
This hearing will explore these issues and any insights that 
Chairman Powell may share for seeing to it that the system 
remains worthy of the public's confidence and appropriately and 
fairly treats all stakeholders and beneficiaries with respect 
to deposit insurance coverage and premium assets.
    I look forward to hearing Chairman Powell's views today. I 
say with much conviction that the committee continues to have 
faith in our financial services industry and in the ability of 
the FDIC to implement comprehensive, meaningful and equitable 
reform.
    Chairman Powell, thank you for your commitment to public 
service and to the FDIC at this most challenging of times. The 
committee will pursue any changes to the deposit insurance 
scheme with deliberation, thoughtfulness and a complete 
understanding of the attendant implications and benefits. The 
changes we are considering will affect the savings and 
investment decisions of millions of individuals and companies. 
The committee will not undertake this responsibility lightly. 
Again Mr. Chairman, welcome, and we are glad to have you with 
us.
    The chair now recognizes the gentlelady from New York, Ms. 
Maloney, for an opening statement.
    Mrs. Maloney of New York. Thank you, Mr. Chairman, and good 
afternoon Chairman Powell, and thank you very much for joining 
the committee. We look forward to your testimony.
    For 70 years, our constituents have depended on the deposit 
insurance system to protect their savings and maintain the 
safety and soundness of the banking system. As I joined this 
committee at the close of the S&L crisis, I have since been 
committed to safety and soundness legislation and oversight of 
the banking system that builds on all we have learned since 
that disaster. We have to remember that standing behind the 
system is the full faith and credit of the United States and 
our constituent taxpayers.
    I am pleased that we are conducting this hearing in an 
environment of bipartisan cooperation, and basically general 
consensus among the financial service regulators. As an 
original cosponsor of H.R. 522, the Federal Deposit Insurance 
Reform Act of 2003, I am supportive of the overwhelming 
majority of the provisions of the bill. It is long past time to 
merge the insurance funds. Additionally, eliminating the 23 
basis point cliff and providing a new premium system that takes 
into account the past contributions of institutions are major 
steps forward.
    The mechanism for determining credit for past contributions 
is based on an amendment I cosponsored with Congressman 
Bereuter last session. This provision is critically important 
as premiums banks pay to the FDIC limit their ability to make 
loans in the communities they serve. I thank Chairman Bachus 
for including this balanced amendment in the legislation, and I 
must add, for working so hard to build a consensus. When you 
had your first hearing I thought we would never have a 
consensus. But by the end of the session, he had built a strong 
bipartisan piece of legislation.
    While there is much to praise in the bill, I continue to be 
concerned about the increase in maximum account coverage from 
$100,000 to $130,000. As Federal Reserve Chairman Alan 
Greenspan's written testimony from last week stated, and I 
quote, our most recent surveys of consumer finances suggests 
that most depositors have balances well below the current 
insurance limit of $100,000, and those that do have larger 
balances have apparently been adept at achieving the level of 
deposit insurance coverage they desire by opening multiple 
insured accounts. The Fed, Treasury, OCC and OTS all oppose 
raising coverage. Only Chairman Powell supported tying coverage 
to inflation from its current $100,000 level. My position is 
that the overall improvements to the deposit insurance system 
in the legislation outweigh the challenges I have with this 
coverage increase, but I continue to hope this section can be 
modified in some way.
    I thank the chairman and ranking member for their work on 
this legislation, and I yield back the balance of my time. I 
thank the chairman for this oversight hearing.
    The Chairman. I thank the gentlelady.
    The chair is now pleased to recognize the author of this 
important legislation, the gentleman from Alabama, Mr. Bachus.
    Mr. Bachus. Thank you, Mr. Chairman.
    First of all, I want to commend you for your commitment to 
deposit insurance reform. You have made this legislation one of 
the top priorities of the committee. You did that last year, 
and I appreciate that.
    I also want to say, Ms. Maloney, that this legislation did 
in fact result from a bipartisan coming together of almost 
every member of the House of Representatives. In fact, the 
legislation that I have introduced this year is the same 
legislation that passed 408-18 last year. You cannot get much 
more of a consensus on a major piece of legislation than that. 
This year, it has been reintroduced with 35 cosponsors from 
both sides of the aisle. Ranking Member Frank is one of the 
sponsors of the legislation.
    Let me say this, deposit insurance reform has been the 
hallmark of our nation's banking system for almost 70 years. 
The reforms made by this legislation will ensure that the 
system that has served American savers and depositors so well 
for so long will continue to do so for future generations.
    There has been a lot of discussion of what this legislation 
does. In that regard, let me stress this. There has been a lot 
of debate about coverage and what the level of coverage ought 
to be. The reason that there has been so much focus on coverage 
is the fact that all the other provisions of this legislation, 
there is complete consensus for the need for everything else--
merging the insurance funds, complete agreement by Federal 
Reserve, Treasury, FDIC, all the regulators, the industry, no 
debate on that; eliminating the current system's pro-cyclical 
bias, complete agreement; addressing the so-called free-rider 
problem by requiring that large brokerage firms that sweep 
customer accounts for uninsured accounts into insured deposits 
will have to start paying their fair share, agreement on that.
    The only disagreement is on coverage. Let me submit simply 
one statement on that fact and I will conclude my testimony, 
because I know Chairman Powell has a plane to catch at 4 
o'clock, and I want the committee to have an opportunity to 
address him. Members should understand that if deposit 
insurance coverage had simply kept pace with inflation since 
1980 when levels were last adjusted, it would now be more than 
$200,000. Even if one accepts the argument that an increase in 
1980 from $40,000 to $100,000 was ill-advised, it is still the 
case that indexing from the $40,000 level in effect in 1974 
would bring coverage today to $140,000. So the notion that 
raising coverage to $130,000 represents some kind of 
irresponsible expansion of the deposit insurance system is 
simply unfounded. In fact, using inflation-adjusted dollars, 
the protection that we are offering American depositors today 
is less historically than it has been in over 60 years.
    With that, Mr. Chairman, I conclude my remarks. Mr. Powell, 
I appreciate your testimony. I do believe that to promote a 
stable and a sound banking system, that deposit insurance 
reform and deposit insurance coverage is a hallmark of that 
system. If we are to preserve that level of protection at 
historic levels, we will have to raise coverage. I say index it 
so we will not have to keep revisiting this every few years.
    Thank you, Mr. Chairman.
    The Chairman. I thank the gentleman.
    Are there further opening statements?
    Mr. Royce. Yes, Mr. Chairman.
    The Chairman. Who seeks recognition? The gentleman from 
California, Mr. Royce.
    Mr. Royce. Yes, not to belabor the point, but I would like 
to thank you again, Mr. Chairman, for reintroducing this bill, 
and certainly thank Subcommittee Chairman Bachus for 
reintroducing this legislation.
    As he has articulated, this bill makes a number of much-
needed statutory changes to the current deposit insurance fund. 
These changes are generally supported by banking regulators, 
but again there is one change which is not. I do want to go on 
record and say that I am reticent to give this bill my 
unqualified support as it contains two provisions that I find 
particularly troubling. One is an excessive increase in deposit 
insurance coverage limits, and a provision that levies 
additional assessments on banks to fund the so-called lifeline 
deposit accounts.
    Extending the liability of the fund beyond its current 
$100,000 limit, again in the words of Federal Reserve Chairman 
Alan Greenspan, would increase the government subsidy to 
depository institutions, would expand moral hazard, and would 
reduce the incentive for market discipline without providing 
any clear public benefit. In addition to this opposition from 
the Federal Reserve, the Office of Thrift Supervision, the 
Office of the Comptroller of the Currency, and the U.S. 
Department of the Treasury all oppose increasing deposit 
coverage limits in the interest of safety and soundness.
    Additionally, giving the FDIC the authority to levy fees 
from private institutions for purposes other than managing the 
safety of the fund, such as for federally subsidized checking 
accounts, is in my view ill-conceived and sets a bad precedent 
which may encourage future politically motivated encroachments 
upon the integrity of the fund. So it is my hope that as we 
fashion this bill, we can bring it back to the $100,000 limit 
and address these issues. The other provisions, as I have 
mentioned before, are very needed and I commend the authors.
    Thank you.
    [The prepared statement of Hon. Edward R. Royce can be 
found on page 36 in the appendix.]
    The Chairman. The gentleman yields back. Are there further 
opening statements? The gentlelady from New York?
    Mrs. Kelly. Thank you, Mr. Chairman.
    It is well known that the FDIC has long played a critical 
role as a provider of confidence and stability in the financial 
system, and many members of this panel would agree that reforms 
to modernize our federal deposit system are long overdue. While 
I have a couple of reservations about the current bill, the 
fact that we are having this hearing so early in the session I 
think is a good indicator of this committee's strong commitment 
to enacting needed reforms in this Congress. I want to thank 
the chairman for making this a priority and for the work he has 
done on H.R. 522. The bill includes changes that ought to help 
us create a more efficient, equitable and flexible system that 
reflects our needs.
    So I thank you, Chairman Powell, for being here today. I 
look forward to your testimony.
    I yield back.
    The Chairman. The gentlelady yields back. Yes, the 
gentleman?
    Mr. Scott. I am Mr. Scott from Georgia.
    Mr. Chairman, I understand that, as was stated before, that 
both you and Ranking Member Frank have both signed on as 
cosponsors of H.R. 522, and certainly given the support in the 
past and a large bipartisan vote that the House gave a similar 
measure last year, I have little doubt that H.R. 522 will 
certainly receive a solid vote from this committee. I certainly 
want to also thank Chairman Powell for appearing before the 
committee today.
    From what I understand, H.R. 522 will allow for greater 
insurance coverage for retirement accounts, which benefits 
seniors, and raises the coverage for municipalities, which 
benefits community growth. Certainly given these challenges 
with the current economy, I certainly look forward to learning 
more about these benefits at today's hearing.
    There is one somewhat troubling aspect that I would hope 
that your testimony might cover today. My understanding is that 
H.R. 522 would increase insurance coverage limits for in-state 
municipal deposits to the lesser of $2 million or the sum of 
$130,000, and 80 percent of the amount of the municipal deposit 
in excess of $130,000. I would like to get some indication of 
how you believe that this increase would promote community 
development in those areas where growth has historically been 
stagnant, particularly in some of the areas in the rural areas 
or some of the lesser-developed areas in areas of my state, for 
example, of Georgia.
    I yield the balance of my time.
    The Chairman. The gentleman from Georgia yields back. The 
chair apologizes. I am still trying to learn the new members' 
states.
    Are there other opening statements? Noting none, we now 
turn to our good friend, the Chairman of the Federal Deposit 
Insurance Corporation, the Honorable Donald Powell.

 STATEMENT OF HON. DONALD E. POWELL, CHAIRMAN, FEDERAL DEPOSIT 
                     INSURANCE CORPORATION

    Mr. Powell. Thank you.
    Chairman Oxley and members of the Committee, it is a 
pleasure to appear before you today to discuss deposit 
insurance reform. Deposit insurance reform is a top priority of 
the FDIC this year, and we appreciate the Committee's 
continuing interest in pursuing reform. The fact that this 
Committee was able to write legislation last year that 
attracted more than 400 votes in the House of Representatives 
was an extraordinary accomplishment.
    I especially want to thank Chairman Oxley, Representative 
Frank, Representative Bachus and Representative Waters for 
introducing H.R. 522, and to thank their colleagues who are 
supporting the legislation. H.R. 522 is a reflection of the 
time and hard work the Committee has spent on these issues over 
the last year.
    When the FDIC has raised issues, the Committee has been 
more than willing to listen to our concerns and to work with 
us. That continues to this day on both sides of the aisle, and 
we look forward to continuing working with you to get the best 
possible legislation for everyone concerned.
    An effective deposit insurance system contributes to 
America's economic and financial stability by protecting 
depositors. For more than three generations, our deposit 
insurance system has played a key role in maintaining public 
confidence. While the current system has been effective to 
date, we are committed to working with you and the financial 
services sector to improve it. H.R. 522 incorporates all of the 
major reform recommendations put forward by the FDIC, and we 
appreciate the Committee's recognition of these important 
issues.
    Today, I want to emphasize three elements of deposit 
insurance reform that would do just that: one, merging the Bank 
Insurance Fund and the Savings Association Insurance Fund; two, 
improving the FDIC's ability to manage the merged fund; and 
three, effectively pricing premiums to reflect risk.
    First, merging the funds. As most of you know, the banking 
and thrift crisis of the last decade left the FDIC 
administering two deposit insurance funds--one to guarantee 
bank deposits and the other to guarantee thrift deposits. Now 
10 years later, industry trends have left no meaningful 
distinction between the two. We should merge the funds into a 
single deposit insurance fund that will be stronger and will 
treat all deposits the same.
    Second, improving the FDIC's ability to manage the merged 
fund. The FDIC is prohibited from charging any premiums to most 
banks in good economic times. That means that during difficult 
economic times, the FDIC is forced by law to levy steep 
premiums on the industry. Doing so would further stress our 
country's financial institutions at the very time when, as a 
matter of economic necessity, we would be asking banks to 
strengthen their balance sheets and to extend credit. Today, we 
announced that the reserve ratio of the BIF increased from 1.25 
to 1.27 over the last quarter, and the SAIF reserve ratio 
decreased from 1.39 to 1.37. Now is the perfect time to address 
deposit insurance reforms. The industry is strong and so are 
the insurance funds.
    Third, effectively pricing premiums to reflect risk. Under 
the current law, safer banks are forced to subsidize riskier 
banks. This is unfair. Just as unfair is the fact that new 
deposits are able to enter the system in good times without 
paying for deposit insurance. Almost 1,000 banks have entered 
the system since 1996 without paying any premiums for federal 
deposit insurance. We have an opportunity, and in my view, a 
responsibility to the American people to remedy these problems.
    The FDIC recommends the following: eliminating the hard 
targets and triggers in the current law; allowing the FDIC to 
manage the size of the insurance fund within a range; 
permitting the FDIC to charge steady, risk-based premiums to 
allow the insurance fund to build up in good times and to be 
drawn down during bad times; permitting the FDIC to charge all 
insured institutions appropriately for risk at all times so 
that safer banks do not unnecessarily subsidize riskier banks.
    These methods for pricing and managing financial risk are 
best practices in the private sector, and we would like to 
manage our system in much the same way. With some flexibility 
in the fund management, we can alleviate the problems with the 
current system, while strengthening our ability to deal with 
any future crisis. We are not asking for absolute discretion. 
We recognize the need for accountability and will work with you 
to ensure that the system provides it.
    The reforms I just described are critical to improving the 
deposit insurance system. Another issue that has been the 
subject of much discussion is deposit insurance coverage. Some 
have said coverage should be higher. Some have said coverage 
should be lower. Our position is simply to maintain its value 
through indexing.
    Deposit insurance reform is not about increasing assessment 
revenue from the industry or relieving the industry of its 
obligation to fund the deposit insurance system. I want to 
repeat that. Deposit insurance reform is not about increasing 
assessment revenue from the industry, nor is it about relieving 
the industry of its obligation to fund the deposit insurance 
system. Rather, the goal of reform is to distribute the 
assessment burden more evenly over time and more fairly across 
insured institutions. This is good for depositors, good for the 
industry, and good for the overall economy.
    Again, we appreciate the committee's leadership on the 
deposit insurance reform, and look forward to working with you 
to get the job done this year.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Donald E. Powell can be 
found on page 37 in the appendix.]
    The Chairman. Thank you, Chairman Powell.
    Let me begin. I notice that in your prepared testimony that 
you do not mention increased coverage limits for retirement 
accounts like 401(k)s and IRAs. Was that just an omission? Do 
you continue to still support that provision of last year's 
legislation?
    Mr. Powell. It was an omission. We do continue to support 
that.
    The Chairman. Thank you.
    As you know, we were following closely the hearing in the 
Senate last week. It certainly appeared from all the press 
accounts that there was a strong consensus among the regulators 
who testified, with the obvious exception of the amount of 
coverage. Is that correct?
    Mr. Powell. Yes, sir. I think there is consensus on 90 
percent of the bill.
    The Chairman. Let me ask you this, what about the issue of 
retirement accounts and municipal deposits? Is that split off 
from the $130,000 for individuals, or does the opposition go to 
the retirement accounts and the municipal accounts as well?
    Mr. Powell. I think the opposition goes to the retirement 
accounts and the municipals as well--with those who would 
oppose increasing coverage.
    The Chairman. So you were outnumbered on that?
    Mr. Powell. Yes, outnumbered on that.
    The Chairman. But you held your own.
    Mr. Powell. Well, I am not sure about that.
    The Chairman. Yes, you did.
    [LAUGHTER]
    Let me ask you, in your testimony you point to several 
provisions that the FDIC supports and that are contained in 
H.R. 522 addressing the so-called ``free rider'' issue. These 
include removing statutory limitations on the FDIC's ability to 
charge premiums to all depository institutions and tying 
transitional assessment credits to past contributions to the 
funds. As you know, some have proposed giving the FDIC the 
authority to levy special premium assessments on rapid growth 
accounts that dilute the insurance funds as an additional way 
of addressing the free rider issue. What is your position on 
that particular issue?
    Mr. Powell. I think, first of all, the ``free rider'' is an 
issue, and I think deposit insurance reform does in fact speak 
to that. We believe that all institutions should pay. As I 
mentioned in my testimony, 1,000 institutions have entered the 
system since 1996, none of which have paid. I chartered an 
institution in Texas about four years ago. It was an FDIC-
insured institution. We did not pay any premiums. That is 
wrong, that is unfair. It is not right. As for institutions 
that grow at a rapid pace, I am not sure that growth by its 
very nature should be penalized or should be assessed 
additional premiums. It is a factor. From a safety and 
soundness standpoint, there are other issues besides growth. I 
would not support a special assessment to those institutions 
that are growing at a more rapid pace perhaps, unless in fact, 
it is a safety and soundness issue. We would charge in the 
risk-based premium for that particular cause.
    The Chairman. So you would not seek a special legislative--
    Mr. Powell. No, sir.
    The Chairman. Okay. Very good.
    As you know, Chairman Powell, a private company recently 
unveiled a product designed to allow small and mid-size banks 
to offer deposit insurance coverage well in excess of the 
current $100,000 limit by participating in a network of 
institutions that would share insured deposits. Some have 
suggested the availability of this product somehow undermines 
the case for high coverage levels. One could also argue the 
product reflects a demand in the marketplace for exactly the 
kinds of higher coverage levels that H.R. 522 would provide. 
What is your view on those apparently competing ideas?
    Mr. Powell. Mr. Chairman, I do not think it is necessarily 
proper for me to comment on the private sector. Innovation 
occurs each and every day. We have not discussed that 
particular proposal in depth at the FDIC. My sense is that it 
will not in any way hurt deposit insurance reform. I think that 
is the private sector at work. Whether it is successful, I do 
not know, but it is not anything that we have any concern 
about.
    The Chairman. Thank you.
    The Chair's time has expired. The gentlelady from New York, 
Ms. Maloney?
    Mrs. Maloney of New York. Thank you, Mr. Chairman.
    I would like to follow up on Mr. Oxley's question on fast 
growth institutions. My understanding is that these new 
deposits are not the major reason for the reduction in the 
reserve ratio, but rather only responsible for roughly one-
fourth of the 16 basis point drop in the ratio. Is that your 
understanding?
    Mr. Powell. I am not sure of the math. I think it is 
something like $80 billion of increase in deposits. I am not 
sure on the math.
    Mrs. Maloney of New York. I have read that in several 
papers, that it was roughly one-fourth of the 16 basis point 
drop.
    Mr. Powell. I think that is correct.
    Mrs. Maloney of New York. Okay. Additionally, I understand 
it is your position that fees for growth could make entry into 
the banking system more difficult for new institutions. Is 
that--?
    Mr. Powell. It is not anything that we would support.
    Mrs. Maloney of New York. Okay. And do you think these fees 
go against the theme of expanding competition, which was the 
reason for Gramm-Leach-Bliley?
    Mr. Powell. Yes, ma'am, that would be part of the factor.
    Mrs. Maloney of New York. Okay. I just wanted to further 
ask you, Chairman Powell, about the coverage question. The 
regulators uniformly do not want to raise coverage beyond 
$100,000. You agree, but would index it to inflation. That is 
my understanding. In your testimony, you call coverage limits, 
quote, ``the most controversial, but least critical of the 
FDIC's recommendations.'' Do you think this is the least 
critical area because as a former banker you do not believe 
raising coverage will attract many additional deposits? Or as a 
regulator, are you concerned about increasing the liability to 
the government?
    Mr. Powell. Coverage is an issue that I have struggled 
with. I struggled with it when I was in the private sector, and 
I have struggled with it as a regulator. I have talked to 
bankers who believe that the coverage should be $200,000. I 
visit them at their institution, and come away understanding 
the rationale behind that. I was in the Midwest recently 
visiting an institution in excess of $40 billion. The CEO 
brought up the issue of coverage, and he said, ``I am opposed 
to increasing coverage.'' I said that I recognized that, and 
that does not surprise me. He said, ``Listen to me. I was 
opposed to it until I went downstairs and visited with new 
accounts folks and customer relations people at our 
institution, and they tell me it makes a difference to the 
customers.'' I thought that was very interesting. Then I 
visited with bankers that have indicated to me they think the 
coverage is about right. In fact, some would say that it should 
be lower.
    I do not know where the coverage should be. I just know 
that Congress established it in 1980 at $100,000, and it has 
served the American people and the industry very well during 
some good times and some bad times. I do know that most of the 
time we react in a crisis and fortunately we are not in a 
crisis today. It is my conclusion that the $100,000 level as 
established, in fact, has eroded in time down to about $47,000 
today. But to take the issue away from the debate we should 
index it at the $100,000 level in order that it will not erode.
    I favor, very frankly, the House bill that simply says if 
indexing is not working, I think the bill says six months prior 
to the announcement of any increase, that Congress can say 
``stop.'' So it seems to me the House bill offers the checks 
and balances against any unwarranted increase that would not 
serve the industry or the American people.
    Mrs. Maloney of New York. Again, following up on Chairman 
Oxley's questioning, now that you are able to open multiple 
insured accounts, and this is taking place in the private 
sector, in your opinion does that really moot this question 
about raising the limit--if you can quickly put it into 
multiple accounts?
    Mr. Powell. No, ma'am. I do not think so, because that has 
been available in the marketplace for many years. I think the 
average depositor, while he or she may be aware that they can 
in fact go into multiple accounts, it is not as simple as it 
may sound, because if the husband and wife are limited to what 
they can put into these accounts, in the retirement accounts, 
and while $100,000 is a lot of money to me, as time evolves 
some folks in fact reach that $100,000 in a relatively short 
period of time. Some bankers in smaller communities where there 
are one or two banks have also indicated to me that there are 
not many choices in these communities, and some of their 
customers are reaching retirement age. Some would have 
$300,000, $400,000, $500,000 in retirement accounts.
    Mrs. Maloney of New York. With regard to these retirement 
accounts and municipal deposits, the bill really reflects a 
compromise. At one point, it was $5 million; now it is $2 
million. Do you believe that raising the coverage on them has 
more legitimacy than on standard accounts?
    Mr. Powell. I think the Congress and the American people 
put a value on retirement accounts, and there are other 
incentives that would encourage people to place money in 
retirement accounts. So we support increasing retirement 
accounts. We do not support the increase in the municipal 
deposits.
    Mrs. Maloney of New York. My time has expired. Thank you 
very much.
    Mrs. Kelly. Thank you. Mr. Bachus?
    Mr. Bachus. Thank you.
    Mr. Chairman, I think the one thing this hearing has pretty 
much reiterated is that the debate seems to be on coverage. I 
think there is a consensus on everything else, so I am going to 
focus on really where the debate is.
    Some have suggested--there have really been two arguments 
thrown out for not increasing coverage. One argument is, it is 
unnecessary; another argument is it puts the financial 
institution or the system in moral hazard, puts our financial 
system at risk. So let me focus first of all on the 
unnecessary. In fact, looking over in the Senate, I actually 
heard testimony which I did not hear challenged that only the 
very wealthy have an occasion to have over $100,000 in a bank 
account. You are a Texas banker. What is your real-life 
experience? Do people other than the very wealthy have over 
$100,000 in a banking account? Is there an occasion where they 
would legitimately have more than that amount?
    Mr. Powell. I am not sure that you and I would have the 
same definition of wealthy.
    Mr. Bachus. I am just going from what the statement in the 
Senate was, ``only the very wealthy'' have over $100,000.
    Mr. Powell. Everybody is wealthy compared to me. Anyway, as 
I indicated, I struggle with this issue. As a banker in the 
late 1980s and early 1990s, I will tell you the issue of moral 
hazard is one that I have learned more about since coming to 
Washington. Being a banker in Texas during the late 1980s and 
early 1990s, deposit insurance, in my view, did in fact 
contribute to the crisis, but it was not the only factor. High 
interest rates, oil prices and poor judgment also contributed.
    I have made the comment publicly that I believe we in 
Texas, had the coverage limit been $25,000, $40,000, would have 
found ways to get the money into those institutions. What is 
important from a supervisory standpoint is what you do with 
that money, which takes the debate off the coverage issue. It 
is a safety and soundness issue, and really a supervision issue 
and a regulatory issue. We were making bad decisions with the 
money, and also we were making poor decisions on what interest 
rate we were paying for those deposits.
    So there were a lot of issues as it relates to this issue 
of moral hazard. As I indicated earlier, I am not sure where 
that coverage should be. I just know that FDIC insurance during 
those times in my life, the late 1980s and early 1990s, was a 
symbol of confidence. From a liquidity standpoint, it was 
extremely important that we had the seal of the FDIC on our 
door just to remain open.
    Mr. Bachus. Thank you.
    One thing I would just maybe suggest to you, and I am going 
to go on to the moral hazard argument, but that people today 
sell their house and when they sell it they deposit the 
proceeds into their bank account. Sometimes a husband or a wife 
dies, and there is insurance proceeds, often it is more than 
$100,000. Sometimes it is $500,000, but they deposit that 
normally into one bank account. That seems to be the 
experience. So there are times, I think, when other than the 
very wealthy have over $100,000 in their bank account.
    The second thing is, and I will call Congressman Royce and 
Chairman Greenspan and Chairman Shelby over in the Senate, I 
will call them the big three. The big three have argued that 
there is a moral hazard; that if we increase it, we increase 
risky behavior, and therefore we should not create moral 
hazard. Interestingly enough, the FDIC looked at this issue in 
a study in 2001. I want to point that out to you. This was 
prepared for the FDIC by two respected economists, including 
Federal Reserve Governor Alan Blinder. The point was made that 
if the FDIC is given the authority to charge risk-based 
premiums as H.R. 522, this legislation, does, quote, most 
objections based on moral hazard should evaporate. That is a 
quote from that report.
    Professor Blinder goes on to state about coverage, quote, 
``in a world of properly priced deposit insurance, it seems 
more appropriate to ask the opposite question. Why have any 
coverage limits at all?'' So at least on one report for the 
FDIC by these two eminent individuals, they addressed that. 
Recognizing that no one here is arguing for unlimited deposit 
insurance coverage, isn't Professor Blinder's underlying point 
a valid one, that if the FDIC has the ability to penalize banks 
for engaging in risky behavior through the assessment of risk-
based premiums, the moral hazard concerns of those who oppose 
coverage increases seems unfounded?
    Mr. Powell. It is a factor. It is a factor, Congressman, as 
well as Congress establishing some other tools that regulators 
can use that would in fact limit moral hazard, such as prompt 
corrective action.
    Mr. Bachus. Thank you.
    Mr. Powell. Let me speak to your ``wealthy'' issue. 
Something just crossed my mind. I think there were 11 
institutions that failed last year. Between 1992 and mid-2002 
there were 9,600 accounts that were uninsured, representing 
about $245 million. Obviously, to those people it was very 
important.
    Mr. Bachus. Thank you.
    I appreciate also your endorsement of Professor Blinder's 
remarks. Thank you.
    Mrs. Kelly. [presiding] Thank you.
    Ms. McCarthy?
    Mrs. McCarthy of New York. Thank you, Madam Chairman, and 
thank you, Mr. Powell.
    I just want to go off on a different track. You are 
recommending that we bring together, and you have mentioned 
many times about the reasoning on why we should bring the bank 
insurance fund and the savings associate insurance fund, and 
why they should merge. I am just curious how long that would 
take, and what would the cost savings be, if there are cost 
savings, and would it become more efficient?
    Mr. Powell. How long would it take?
    Mrs. McCarthy of New York. Yes.
    Mr. Powell. I am not sure I can answer that. Staff probably 
could answer that. I would say in a reasonable period. It is an 
accounting issue. I would think it would be a matter of days.
    Mrs. McCarthy of New York. So it is just a matter of 
really--
    Mr. Powell. Yes, it is just a matter of bookkeeping entries 
that would go in. I think merging the funds would be much more 
efficient. I think it would be efficient for us at the FDIC, 
and more important I think it would be more efficient for the 
industry, because a lot of the banks have acquired S&Ls, S&Ls 
have acquired banks, and there is some confusion about keeping 
separate books to make sure what is in which fund. So I think 
it is a win-win for everybody. There is almost unanimous 
support for that provision of the bill. I really have not heard 
very much opposition to it.
    Mrs. McCarthy of New York. I just want to make one comment, 
too. Fortunately when my husband died, and I did get an 
insurance check, not much, but it was over $125,000, and I am 
not wealthy. So I happen to agree with you. Thank you.
    I yield back my time.
    Mrs. Kelly. Thank you, Ms. McCarthy.
    Mr. Baker?
    Mr. Baker. Thank you, Madam Chair.
    I appreciate your appearance here today, Mr. Powell, and I 
have a really pretty simple question. To construct a risk-based 
premium system, one must have certain elements that you are 
going to put into the pot, which I understand are not yet fully 
determined. That presumes that you have the ability to see the 
data that is relevant to the concerns in some timely manner. I 
have had, and continue to have concerns about the 90-day-old 
retrospective reporting quality of call reports. Particularly 
if we are now going to move to a risk-based system to start 
assessing premiums, it would seem to me that real time, 
transparent disclosures and methodologies would be of real 
value to you.
    I am going to get to the point of what I believe to be a 
pilot program that either has been initiated or soon to be 
initiated relative to extensible business reporting language, 
the acronym XBRL. I find it very interesting and of 
extraordinary value for a number of particular reasons. Is that 
methodology something that possibly, pursuant to this pilot 
program--I am not exactly sure what the goal of it is--but 
after your analysis, is that something that could be reviewed 
as a potential way for us to get a better and clearer 
understanding of the true risks within a financial institution?
    Mr. Powell. Absolutely. I share your concern. As a banker, 
it always caused me pause or discouragement frankly with the 
slowness and timing of information that we received from the 
FDIC. Most institutions know what their balance sheet and their 
income statement is at the close of business each day. 
Accordingly, the FDIC, with other Federal financial 
institutions exam council members, are currently planning a new 
call report system that would include the use of XBRL.
    We are at the very beginning of that. We have developed 
some specs for vendors to submit for proposals to the FFIEC, 
all with the thought of being more timely, more accurate, and 
having more consistency in reporting. Real-time data is 
something that we have a goal at the FDIC to accomplish. I 
think we are going to get there. It will be slower than what I 
would like, but also as you mentioned, it will assist us in 
risk-based premiums.
    Mr. Baker. Good. I think it has an application even beyond 
financial institutions. I like the idea of extending this to 
publicly traded corporations, but I want to make sure that 
someone of the stature of the FDIC has thoroughly examined it 
and whenever it is appropriate, whatever observations or 
recommendations can be publicly made, I would certainly like to 
know them.
    Mr. Powell. We will keep you informed.
    Mr. Baker. Thank you very much.
    Mrs. Kelly. Mr. Miller?
    Mr. Miller. Thank you, Mr. Powell.
    The Office of the Comptroller of the Currency and the 
Office of Thrift Supervision have ordered federally chartered 
banks and thrifts to end their affiliation with pay-day 
lenders, based at least in part on safety and soundness 
considerations, although pay-day lenders receive astronomical 
interest rates. The average annual interest rate on a 12-day 
loan in my state of North Carolina is 547 percent. They are 
also very risky loans. They tend to be made obviously with very 
little or any underwriting. There is no security for the loans. 
They are obviously made to people who are very poor, which is 
why they are in the market for a substandard loan in the first 
place.
    I know the FDIC has now issued an advisory for public 
comment on those affiliations. Do you see between FDIC-
supervised thrifts and petty lenders, do you see that 
affiliation affecting the safety and soundness of banks under 
your supervisions? If so, what kinds of regulations are you 
considering?
    Mr. Powell. I do see it as a safety and soundness issue. 
Part of our guidelines speak to that one issue, safety and 
soundness. Accordingly, our guidelines also tell those 
institutions that we will be requiring capital equal to the 
outstanding indebtedness. We may also have other supervisory 
requirements for those institutions that participate in those 
loans. It is a safety and soundness issue.
    My thinking, as a former banker, some of the requirements 
that we at the FDIC may impose upon those institutions may not 
make it economically viable to participate in the business. But 
if an institution so chooses, we will act accordingly from the 
safety and soundness standpoint.
    I also think, Congressman, it is important that in this 
whole notion of pay-day lending, we think a little bit about 
literacy--economic literacy. We at the FDIC are committed to 
that. We have a program that we refer to as ``Money Smart,'' 
and we would be happy to send you information about that. But 
education is part of the whole notion of resolving some of 
those practices that go on.
    Mr. Miller. Mr. Powell, the reason, of course, that there 
is that affiliation in the first place is simply that pay-day 
lenders can avoid state regulation by claiming a preemption of 
federal law. Obviously, North Carolina does not allow 547 
percent interest rates under our usury laws. Have you 
contemplated simply a prohibition, the way the OCC and the OTS 
have--follow their lead?
    Mr. Powell. We have contemplated it. I think the best thing 
for us to do is wait until we have comments back from our 
proposal, and we would be happy to share those comments with 
you and share our conclusion after receiving those comments. 
But I think we need to make sure that we vet it in the 
marketplace to be sure that we are not missing anything.
    Mr. Miller. Thank you, Madam Chair.
    Mrs. Kelly. Chairman Powell, I am interested in the 
financial literacy that you just spoke of. Can you tell me the 
name of that again?
    Mr. Powell. Money Smart.
    Mrs. Kelly. Money Smart?
    Mr. Powell. Yes, ma'am.
    Mrs. Kelly. It might not be a bad idea if the whole 
committee had a copy of that. Would you be willing to send us a 
copy?
    Mr. Powell. Absolutely. We are very proud of that. In fact, 
we are introducing it in Chinese--we have it obviously in 
English and Spanish and a Chinese version is going to be ready 
for the marketplace I think within 30 days.
    Mrs. Kelly. Would you be willing to send us a Hispanic copy 
as well, please?
    Mr. Powell. Absolutely.
    Mrs. Kelly. Thank you very much.
    Mr. Royce?
    Mr. Royce. Thank you, Madam Chairman.
    I would like to ask Chairman Powell, as you may be aware, 
tomorrow this committee will be holding a hearing on the 
proposed interest on business checking legislation, proposed by 
Mr. Toomey and Ms. Kelly, which I support. However, the 
legislation as introduced would discriminate against industrial 
loan companies in my state--businesses that make a valuable 
contribution to keeping the financial services marketplace 
dynamic and keeping it competitive. Even though the FDIC 
regulates these companies and the NOW accounts they offer, they 
are not included in this legislation. I would like to know, 
would the FDIC be supportive of efforts to allow financial 
institutions to pay interest on NOW accounts held by 
businesses? I would just ask, in your view, is there any safety 
and soundness issues here?
    Mr. Powell. The FDIC would not object to paying interest by 
these financial institutions on NOW accounts held by 
businesses. We do not really perceive those any different from 
any other business accounts, and we do not see it as a safety 
and soundness issue.
    Mr. Royce. I appreciate that very much, your answer on that 
score.
    Also, returning to the question of the $100,000 coverage, 
you had indicated earlier that during the S&L crisis in the 
1980s when we had the issue of whether moral hazard was a part 
of creating that climate, you said the higher deposit insurance 
did contribute to the crisis. In your view, there were other 
factors, but it was a contributor. We have the argument put 
forward in the Senate the other day, the thesis of why have any 
coverage at all. If you have coverage limits removed, but at 
the same time if you have a perfect construction of a risk-
based premium model put in place, in theory you would not have 
moral hazard as a consequence.
    I think the answer that Hawke, or certainly Alan Greenspan, 
because he has said it as well, would put forward--they would 
say, because ultimately the incentive for market discipline is 
preferable to attempts of government regulatory agencies to try 
to approximate the discipline of markets. They would say, to 
construct a risk-based premium system perfectly and do it by 
government oversight is inherently risky, especially when you 
start talking about the thesis of removing it altogether, the 
limit.
    It is not only the moral hazard argument that has been put 
forward here, it is also the increase in government subsidy, 
which is an issue. It is reducing the incentive for market 
discipline. At the end of the day, you have the four regulatory 
agencies on the other side of you arguing, do not do this; do 
not move forward with increasing the coverage. That is rather 
formidable opposition. I was going to ask you, how do you 
answer the opposition of every other financial institution 
regulator, who although they all agree that the rest of this 
legislation--this bill is badly needed. Everything else in this 
bill is a step in the right direction. They feel that this 
element is not. I wanted to get your response once more for the 
record.
    Mr. Powell. Thank you. Let me speak to the subsidy issue. 
It is a subsidy, but as a former banker, I used to say we pay 
for that subsidy. It is a franchise. We have a charter. We have 
a choice. It is a subsidy.
    The second issue, market discipline. I am a free market 
guy. I struggle with the free market's instability. My 
experience says that in the free market when an institution is 
in trouble, the sophisticated depositor flees and the 
unsophisticated depositor stays. It is a matter of education. 
The other agencies--I appreciate and understand their views. I 
do believe that Comptroller Hawke at the Senate hearing said 
that he did not have any objection to indexing.
    Mr. Royce. Thank you, Chairman. I appreciate it.
    Mrs. Kelly. Thank you.
    Mr. Scott?
    Mr. Scott. Thank you, Madam Chairman.
    I would like to go back to the point I mentioned in my 
opening remarks, if you could address it. We have a lot of 
communities that are stagnant in their growth. How will the 
increase in insurance coverage limits for in-state municipal 
deposits promote community development in those areas? I have a 
second part to that I will follow up on.
    Mr. Powell. Congressman, I think at the institution where I 
used to be CEO, we would bid on municipal deposits if we 
thought there was an economically viable way we could make a 
buck. There were days that we would bid on them, and days we 
did not because of competition. Had we been able to be the 
successful bidder on those deposits, we of course would loan 
money based on them, but that is very, very competitive in the 
marketplace. Most states have a central depository where they 
accept municipal deposits and they pay, very frankly, a rate 
that most bankers do not want to pay. It is a higher rate. 
Thus, that money goes to the central location, which takes the 
money out of the local marketplace. So, it is a matter of 
economics with lots of institutions. They want the money, but 
they want the money at their price. As you know, most states 
also require that those deposits be fully collateralized with 
treasuries or comparable-type securities.
    I have not found that it causes any bankers any concern 
that municipal deposits are not insured. I have heard from 
members of Congress and I have heard from some bankers in Ohio 
where there was recently an institution that failed, and there 
were some losses of municipal deposits. To my knowledge, 
however, there has not ever been a municipal depositor who has 
lost any money in an insured institution that has failed, 
saving with the exception of one that occurred last year, and 
that was a result of fraud.
    Mr. Scott. The other part of my question is that Chairman 
Greenspan made a statement in his testimony before the Banking 
Committee that by raising these coverages to $100,000 or above 
would encourage banks to engage in risky behavior. Do you agree 
with that? And also, are there some incentives in here that 
would prevent banks from doing what Greenspan fears they would 
do?
    Mr. Powell. The best incentive is keeping their job. I 
appreciate and understand, and as I have mentioned before, I 
understand and recognize the principle of moral hazard. I do. 
But also recognize that most bankers want to operate an 
institution that serves the community, that is committed to the 
community, that returns a reasonable return, a good return to 
the shareholders. If they are making decisions that would cause 
that institution to be overly supervised by the regulators, or 
that depositors or customers would leave that institution 
because of poor decisions, the first person that is going to be 
replaced is management. Most of the time, management has 
ownership in the institution. Not only are they going to be 
replaced, but they are going to lose their investment.
    Having said that, clearly there are temptations. It 
occurred in Texas in the late 1980s and early 1990s, to make 
poor decisions. As I have indicated, I respect and understand 
that deposit insurance was a factor, but in my opinion, it was 
not the main one.
    Mr. Scott. Thank you. I yield back.
    Mrs. Kelly. Thank you very much. It is now time for me to 
ask my questions, Chairman Powell.
    We have been hearing from a lot of the banks and from a 
number of the people here on the committee that there are 
people who want higher coverage levels, and other people want a 
level to stay where it is. I wonder if the FDIC has studied the 
concept of giving the financial institutions the option to 
purchase additional municipal deposit coverage. That might give 
them flexibility that I was talking about earlier in my opening 
statement. I am wondering if you have ever studied it, and what 
your findings might have been.
    Mr. Powell. We have had some preliminary studies on that. I 
will confess to you I am not sure what the conclusions were. I 
will tell you that we would be more than happy to study that 
and come back to you and the other members of the committee and 
members of Congress with our conclusions.
    Mrs. Kelly. Thank you. I think that would be interesting, 
if the banks could get extra coverage from the FDIC. It seems 
to make sense, and I would really appreciate your doing a 
study.
    I would also like to get your thoughts on the 
appropriateness of programs to lower the premiums or the 
credits to the financial services that offer services to 
certain communities. As you may know, Congresswoman Waters had 
an amendment that would provide for a 50 percent discount in 
the assessment rate for deposits attributable to lifeline 
deposits and so forth. I would like to get your feelings on 
that.
    Mr. Powell. I support the initiative for all institutions 
to reach out to the un-banked in their community. It is very 
important that we make sure that all members of our community 
are part of the economic wealth of America.
    Mrs. Kelly. Do you support the 50 percent discount?
    Mr. Powell. I do not support the 50 percent discount 
because I do not perceive it as a safety and soundness issue. 
Premiums, in my view, should be based on the safety and 
soundness of the institution, and I would not support the 
lifeline provision. Again, I want to emphasize that we should 
find other ways, other incentives, in my view, to encourage 
financial institutions to reach out to the un-banked. Clearly, 
I support that.
    Mrs. Kelly. Since I have a little bit more time, I would 
like to know what constants do you have currently in charging 
risk-based premiums, as authored by FDIC?. What information are 
you using in setting the risk-based premiums?
    Mr. Powell. I may need some help from the staff, but 
basically as you know, many--91 percent or 92 percent of the 
institutions now do not pay, and part of the law that we 
operate under is that well-managed and well-capitalized 
institutions should not pay. It has specific definitions--it is 
capital and supervisory rating, and that is it--the amount of 
the capital and our supervisory rating, the CAMELS ratios. 
Risk-based premiums under the proposed legislation would expand 
that, in my view, in a much more--not unlike the private 
sector. It would look at internal and external issues. As you 
know, we are attempting to make sure that the risk-based 
premiums are transparent; that they are fair; and that they 
have more objectivity than subjectivity in the cost.
    Mrs. Kelly. Is there someone behind you who might talk to 
us a little bit about what exactly, besides fairness, 
transparency, and the cost--is there anything else that they 
would like to add, since you said that--
    Mr. Powell. I can add some things to be specific--balance 
sheet, growth, management, earnings, capital, liquidity, rating 
agencies. You might even look at stock price, secured 
liabilities, funding, growth.
    Mrs. Kelly. It sounds like that pretty much covers it. 
Okay, great. Thank you.
    I wanted to ask you about a bill that has been reintroduced 
in the House that has a flexible range that goes down to 1.15 
percent. A Senate bill was introduced that allows the level to 
go down to 1 percent. Does the administration think that either 
of these floors for the fund is too low?
    Mr. Powell. Does the administration?
    Mrs. Kelly. Yes.
    Mr. Powell. I have had some conversation with the folks at 
Treasury, and part of that conversation was they believe that 
the Senate bill in fact is too wide of a range. We at the FDIC 
obviously want a wider range. We think the 1 percent and 
perhaps the 1.15 percent in the House bill, to the 1.4 percent 
to the 1.5 percent--the larger the range, we believe the better 
that we will not have unintended consequences from the pro-
cyclical issue.
    Mrs. Kelly. Thank you very much. My time is up.
    We go to Mr. Emanuel.
    Mr. Emanuel. Thank you.
    Mr. Chairman, you have actually directed an answer to a few 
of the questions. This goes in the league of a softball. Take a 
breather. Relax here on this one.
    Mr. Powell. Thank you.
    Mr. Emanuel. Chairman Powell, at last week's Basel Accord 
hearing, we heard concerns about how Basel II could potentially 
create competitive inequalities among different classes of 
financial institutions. We had a discussion and back and forth 
some questions. Just your comments on how you see H.R. 522 in 
that same vein--whether you think it will create some of the 
inequalities that we asked about on Basel II--just from your 
perspective of how this bill would do.
    Mr. Powell. As it relates to large institutions and smaller 
institutions? We at the FDIC, treat them all the same. 
Hopefully, no one would interpret deposit insurance, or risk-
based premiums or any other issue as being a favor to smaller 
institutions or larger institutions. They are all the same.
    Mr. Emanuel. Thank you very much.
    Mr. Bachus. [presiding] The gentleman from Texas, Mr. 
Hensarling.
    Mr. Hensarling. Thank you, Mr. Chairman.
    First, Chairman Powell, as a fellow Texan I want you to 
know I sleep better at night knowing that you are running this 
shop. I also want to congratulate you for your compelling and 
reasoned testimony. I read with great interest today that 
apparently, for the first time in our nation's history, FDIC-
insured institutions topped $100 billion in earnings. So you 
and your people must be doing something right. I salute you for 
your stewardship.
    I have a couple of questions. One, I wanted to follow up on 
Ms. Kelly's line of questioning. Obviously, as most of the 
members of this committee, I agree that we need to move to a 
risk-based premium system. In your testimony, you talk about 
eliminating the existing inflexible statutory requirements, and 
adding discretion and flexibility for the FDIC board of 
directors. Although I have never been a banker, I have been a 
businessman. When I had the misfortune of dealing with 
regulators, I always wanted there to be a tangible standard or 
metric that I knew that I could shoot for, and I was always 
concerned about any arbitrary application on the part of the 
regulator.
    So I wish you could give us any further details about the 
current status of thought within the FDIC, about how we impose 
accountability and safeguards on this new system of discretion 
and flexibility.
    Mr. Powell. Thank you.
    I am in a fiduciary role. I take accountability and 
responsibility very seriously. We would be happy to work with 
Congress and we would be happy to work with industry to make 
sure that we are in fact accountable. We would be happy to 
listen to any suggestions, any recommendations that would in 
fact hold us more accountable as it relates to this deposit 
insurance program.
    But however, saying that, the hard targets, I do not think, 
have served us in the past, and we would again ask the Congress 
not to put in hard targets, especially as it relates to 
managing the funds; but we want to be accountable.
    Mr. Hensarling. Second question, moving to the issue of 
indexing the deposit insurance for inflation that you are 
advocating, I am new to this particular argument, and I have 
heard within this committee inquiries that give me some insight 
into the rationale. You mentioned in answering one of the 
questions, kind of some anecdotal evidence, speaking to some, I 
believe, new account officers at a bank. But I am curious, do 
you have any comprehensive studies or evidence to what extent 
the impetus is really consumer-driven here?
    Mr. Powell. I do not think there is any empirical data, 
Congressman. I do not think we have any empirical evidence that 
it should be at $90,000, $150,000. We have some surveys that we 
have participated in over the last four or five years, before 
my time, asking folks what they believe the coverage should be. 
It goes all over the board. So there is no empirical evidence 
that it should be at a certain level.
    As I said earlier, repeating myself, I am not sure where it 
should be. I just know that it has served the American people 
and industry for the last 23 years, and most of the time we 
react to a crisis. That is what happened the last time it was 
raised from $40,000 to $100,000. I would hope that we will 
remove it from the crisis arena, put that issue to bed, and 
just index it. That is the reason I said I liked the provision 
within the House bill that says if in fact it gets away, 
Congress can say stop.
    Mr. Hensarling. I believe I understand the costs associated 
with the proposal, and that is increased exposure for the 
American taxpayer. I understand the scenario of the one-time 
insurance proceeds that may exceed $100,000. In trying to 
understand the benefits of the proposal, I am curious about 
other rationales or other benefits that you see associated with 
it.
    Mr. Powell. There is no question that the FDIC leverages 
the United States Treasury balance sheet. However, as you know, 
premiums are paid by the industry. Before we go to the United 
States Treasury, we would tap the industry. There is something 
like $750 billion of book value in the industry today. So we 
would have to expose $750 billion and then approach the United 
States Treasury balance sheet. Obviously, we leverage the 
United States Treasury balance sheet--we acknowledge that.
    But with true risk-based premiums, it should move more in 
the direction of the private sector, where there are penalties 
for institutions that are not conducting themselves in a 
businesslike way, in a way that produces sound and effective 
policies. And it would reward those institutions that in fact 
do conduct their business using sound and safe policies. So 
there will be winners and there will be losers and hopefully 
these premiums will be an incentive to those who are doing some 
things that they should not be doing, so they would not have to 
pay the premium. That would be a management decision. 
Management may choose to say, you know, I do not care, I will 
pay the premiums, I am going to continue down the road in the 
business practices and the business model that I want to go to.
    Mr. Bachus. Thank you, Mr. Hensarling.
    Mr. Davis?
    Mr. Davis. Thank you, Mr. Chairman.
    Mr. Powell, I have been felled with a bout of laryngitis 
the last few days, so I apologize for sounding like Don 
Corleone in advance.
    Let me pull out a couple of things. I am a cosponsor of 
this legislation. One of the reasons is because I suspect that 
it would provide something of a competitive advantage or 
something of a competitive tool for small banks. I represent a 
district that contains a large contingent of rural areas, and 
as you know, it is a very difficult challenge to sometimes get 
banks to locate in those areas. The only ones who are willing 
to do it are often your small banks, your community banks. I 
see this perhaps in answer to one of Mr. Hensarling's 
questions, I see this as an additional incentive or additional 
advantage of this legislation.
    Having said that, let me ask you this set of questions. In 
response to Representative Kelly's questions about the criteria 
that would be used for setting premiums, the risk-oriented 
criteria that would be used for setting premiums, the majority 
of those criteria seem to me that they would favor larger, more 
established, better capitalized banks. So therefore, some of 
the advantage that could be gained by small banks could be lost 
as we moved to the other part of the process.
    So address that concern for me, if you would--talk to me 
about what the FDIC can do to avoid putting the disadvantage 
back on small banks when the risk factors are calculated.
    Mr. Powell. I appreciate your concern, Congressman, and 
have had some bankers indicate the same concern to me. I have 
found that smaller institutions, the management of smaller 
institutions in the communities that you have described, are 
pretty solid. They are bright. They are very competitive. I do 
not think it is a disadvantage. I do not think our risk-based 
premiums will cause any disadvantage to small institutions, nor 
do I think it will cause disadvantage to large institutions. I 
think it will be very uniform across the small and across the 
large institutions.
    Again, we are going to be very transparent in this. Every 
institution will have an opportunity to comment on the risk-
based premium profile. It is not in any way the intent to favor 
one size of institution over another size.
    Mr. Davis. Let me ask you one other question, Mr. Chairman. 
Given the fact that the weightiest argument of the opponents 
seems to be that raising the premiums, or rather raising the 
deposit insurance, will somehow provide an incentive for risky 
behavior on the part of banks. Are you amenable to some kind of 
a compromise in which the increase happens only for very low-
risk banks instead of happening across the board?
    Mr. Powell. I think that is what a risk-based premium does. 
I think the coverage issue is a different issue. I think the 
coverage issue is one issue, but risk-based premiums will be 
based upon how a bank, in fact, performs.
    Mr. Davis. Right. I understand that. I guess what I am 
asking is, is it possible that we could have some kind of a 
formula in which we calculate the degree to which certain banks 
fell in a high risk or low risk category, and then we only 
increased the insurance for banks that were not low-risk?
    Mr. Powell. I think it would be very confusing for the 
marketplace. I think there would be more disruption in the 
marketplace than benefits. It may be that considering--someone 
asked a moment ago how one might get additional coverage--the 
study we talked about paying additional premiums for that. But 
I think having one institution having coverage at one level and 
another institution having coverage at another, I think would 
disrupt the marketplace.
    Mr. Davis. Would you be open to any scenario in which if a 
bank saw its rating fall, for example, from one risk category 
to another, that it would lose the level of insurance, or 
something that would at least provide incentives towards sound 
conduct on the part of the bank?
    Mr. Powell. Hopefully, we can do that through charging them 
more for the product.
    Mr. Davis. Okay. I will yield back the balance of my time, 
Mr. Chairman.
    Mr. Bachus. Thank you, Mr. Davis.
    Mr. Davis is from Alabama, and he yielded back some of his 
time. He was very prompt--also a Harvard graduate. He knows how 
valuable time is.
    The gentlelady from Florida?
    Ms. Brown-Waite. Thank you very much, Mr. Chairman.
    Chairman Powell, the administration and the Federal Reserve 
have expressed opposition to the portion of the bill that 
increases the coverage limits. Can you explain what the primary 
concerns are, because I have not received the details of it. 
You may have gone over this previously. I came in a little late 
to the meeting. If you have, I apologize. If you have not, I 
would appreciate hearing your interpretation of their 
opposition.
    Mr. Powell. Thank you. Here is my interpretation of their 
view. I think the moral hazard issue is an issue that was 
raised by the Federal Reserve and Treasury. I think also they 
believe there is opportunity in the marketplace to distribute 
one's money among insured institutions and insured accounts. 
The system is working the way it is okay. These are probably 
some of their views--I am not doing them very good service, but 
primarily the moral hazard issue, and there is no compelling 
reason to increase coverage by consumers.
    Ms. Brown-Waite. My second question relates to the 
arbitrariness of going to $130,000. I think you may have 
addressed that, but if there were a formula that you had that 
brought us to the $130,000, other than it appears to be 
arbitrary, because if you look at the inflation factor, it does 
not match up with inflation. Is $130,000 what you think is the 
path of least resistance?
    Mr. Powell. I am not sure that, again I repeat myself to 
some extent, where that number should be. I just believe that 
the House bill does not cause any concern for us at the FDIC 
from a safety and soundness issue. And the cost to the 
industry, if we in fact merge the funds, I do not think would 
be a burden.
    Ms. Brown-Waite. Thank you. I yield the rest of my time.
    Mr. Bachus. I thank the gentlelady.
    Mr. Meeks?
    Mr. Meeks. Thank you, Mr. Chairman.
    Chairman Powell, let's say this is an ideal world, and just 
as you want it--you know, deposit insurance reform is enacted 
just as you want it. What would the FDIC do if an institution 
then shifted a very large amount of previously uninsured funds 
into an insured bank, causing the fund to drop below the lowest 
allowable reserve ratio?
    Mr. Powell. Under deposit insurance reform, that 
institution would immediately start paying premiums on these 
funds to the FDIC. We would also base our premiums upon the 
risk profile of that institution. If, in fact, the institution 
was doing some things--growing too fast, undercapitalized, poor 
management, business plan in a fog--they would be paying 
additional premiums.
    Mr. Meeks. So let me just make sure, so you are saying all 
FDIC-insured banks would pay these additional?
    Mr. Powell. Yes, sir--all pay.
    Mr. Meeks. Let me ask another question. I believe you 
testified to this. I was not here, but I know there has been 
some concern about the fact that newcomers since 1997 have not 
paid into the deposit insurance system. If we made premium 
requirements more flexible, how would you propose to charge 
such newcomers when the DRR is above the ratio target?
    Mr. Powell. Under deposit insurance reform in the House 
proposal, the DRR would be a flexible number determined by the 
FDIC, with accountability. Remember, all institutions would pay 
immediately--everybody will pay, again based upon the risk 
profile.
    Mr. Meeks. Okay. One other question. If you have the 
flexibility to move the DRR within a range, what are some of 
the factors that would cause you to move the DRR up and down 
within that range?
    Mr. Powell. That is a good question. I think there would be 
several factors. I think the condition of the industry would be 
the primary factor. We would act just like a life insurance 
company, just like any other insurance company would act 
depending upon what we believe the risk is to the insurance 
company--condition of the industry; where the deposit fund 
balance was; history; and obviously some economic data. Through 
our supervision and cooperation with other agencies and their 
input, we could come, I believe, to an appropriate decision.
    Mr. Meeks. Thank you. I yield back.
    Mr. Bachus. Thank you.
    The former Chairman of the full committee, Mr. Leach?
    Mr. Leach. Thank you, Mr. Chairman.
    I would like to talk a little bit about history from two 
perspectives, if I could, Mr. Chairman. This concept of why the 
S&Ls got in trouble, and whether there was a tie to deposit 
insurance is a judgmental concern. First, let me describe very 
precisely the difficulty when the S&Ls came in, how it tied to 
deposit insurance, and why it may not be as directly relevant 
to this debate as has been placed on the table.
    The S&Ls got in trouble in the first instance because they 
were an industry that lent long and borrowed short. When 
interest rates rose, this caused serious difficulty. They got 
in trouble in the second instance when--and here there is a tie 
to deposit insurance--the regulators did not have the backbone 
to recapitalize when their capital base eroded, often to the 
point of less than zero.
    Then they got in trouble in the third instance when public 
officials, often at the state level, with some support from a 
national regulator, decided to give them powers that had never 
been given to a particular industry. This elongated the losses.
    The tie to deposit insurance is that an institution can 
operate effectively in an unregulated environment--that is, it 
can have less than zero capital--and can attract deposits 
because you have deposit insurance, there is an incentive to 
attract more money at higher interest rates, to pay yourself 
more if you run the institution, and to dividend yourself more 
if you own the institution. So there was a cascading 
phenomenon.
    The reason I emphasize this is, deposit insurance is not in 
and of itself a problem, except when it is tied to failure of 
regulators to be firm and thoughtful. The real fault is 
regulation that was infirm and unthoughtful. Deposit insurance 
was a footnote, although a very important footnote. But if one 
assumes proper regulation, increasing deposit insurance is no 
particular problem. That is the point of view that I think 
should be on the table today.
    Now, if one assumes that bank regulators are asleep at the 
switch--that means the FDIC, the OCC, the Fed and all the State 
regulators--then the case for increasing deposit insurance is 
non-existent. If one assumes that they are pretty credible, the 
case can be rather powerful. I am of the view the regulators 
today are pretty credible and that they learned a lot from 
previous experiences. Therefore, the case for increasing 
deposit insurance to me is persuasive.
    Then you have the question of how much coverage should be 
increased. There is pretty good consensus from yourself, from 
others, that COLA adjustments are pretty reasonable. I think 
so, too. Then the barometer becomes at what point do you tag 
them? Do you tag them starting immediately? Do you tag them 
starting with the last increase? I am on the generous side of 
that issue, but there might be some room for compromise.
    I think the discussions that revolve around deposit 
insurance causing the S&L crisis must be measured against the 
totality of the circumstance and not simply catergorized as a 
cause because the cause was only tied to imprudent regulation.
    There is one other footnote to all of this. The first 
cause, which relates to the issue of an industry borrowing long 
and lending short, the positive aspects of that industry, 
whether done by a bank or an S&L today, is the new techniques 
of laying off risk in ways that did not really exist, at least 
as a general practice, in the mid-to late-1970s, when the 
escalating inflation problem developed. But that particular 
industry, which is housing, is one of the steadiest and one of 
the best risk layer-offers, without the use of sophisticated 
derivatives, although at the Fannie and Freddie level there is 
some use of derivatives, but that is a separate sort of 
circumstance. It does not relate directly to a financial 
institution that has deposit insurance.
    So my own personal view is that the administration should 
not be so reluctant and the use of the phrases S&L problem and 
deposit insurance may be hiding other competitive judgments 
that should not really be part of the equation. I think this is 
a small institution issue principally, although not 
exclusively, and that small institutions are right.
    But anyway, that is a judgment circumstance, and I would 
appreciate your comment.
    Mr. Powell. Well said, Congressman, well said. I agree with 
you 100 percent.
    Mr. Leach. Thank you. I yield back the balance of my time.
    Mr. Bachus. I would like to also associate with the remarks 
of the former Chairman, Mr. Leach.
    At this time, I would like to recognize one of your fellow 
Texans, Mr. Hinojosa.
    Mr. Hinojosa. Thank you, Chairman Bachus.
    Before I make a statement, I wish to request that my entire 
written statement, which I was going to present earlier, but I 
was in another committee meeting, be included in the record.
    Mr. Bachus. Without objection.
    [The prepared statement of Hon. Ruben Hinojosa can be found 
on page 34 in the appendix.]
    Mr. Hinojosa. Thank you.
    I am very pleased that my colleagues before me have asked 
so many questions and given clarification to your position on 
H.R. 522. I saw where in last week's Senate Banking hearing you 
indicated your support for indexing individual deposit 
insurance coverage to inflation. Some of us have a strong 
feeling for seeing it being increased to the $130,000 from the 
current $100,000 level, but I certainly respect your reasons 
for how you feel.
    Having answered so many of the questions that were on my 
mind as to how you felt and why, I simply want to use this time 
to commend you, Chairman Powell--you and the FDIC--for your 
money smart financial literacy program for adults. Both the 
English and the Spanish versions are being disseminated in my 
congressional district, and hopefully will help educate my 
constituents on checking, savings, credit and other types of 
financial products necessary to improving one's economic 
situation in life.
    I have a large percentage that do not use banks and do not 
have banking accounts. So this type of financial literacy will 
be very helpful. I just want to go on record that I personally 
thanked you, and that I am pleased that you came to speak to us 
this afternoon.
    Mr. Powell. Thank you. I will pass your comments on to the 
staff that worked on Money Smart.
    Mr. Hinojosa. I yield back the balance of my time, Mr. 
Chairman.
    Mr. Bachus. Chairman Powell, we have one more questioner. 
The gentleman from Connecticut?
    Mr. Shays. I thank the gentleman. Thank you, Mr. Chairman, 
and Chairman Powell.
    I have come late, but I have had a chance to read your 
statement. I just want to get into one area that deals with the 
deposit insurance. I am very concerned, as you point out in 
your statement, that you could have a thousand new charter 
institutions with more than approximately $880 billion in 
insured deposits that have never paid premiums for the deposit 
insurance they receive. That just seems to me to be kind of 
crazy.
    So I like the idea that we would require everyone to pay. I 
also recognize that there is a point at which you do not want 
to build up the fund to absurdity, obviously, and take out 
money that could be used to help build a community. So I like 
the idea of requiring all to deposit and then to provide a 
rebate, in essence, when the fund gets up to a certain point.
    The area of my question is, though, who should decide what 
goes back to the banks? While I could draw comfort in the fact 
that you could decide, and you would be reasonable, should not 
the Congress set some parameters in deciding how large that 
fund should be and make sure that we are not taking too much 
out? In spite of my budget instincts, I have always wanted to 
have a lot of protection.
    Mr. Powell. Yes, Congressman. I think Congress should, and 
I think the ranges in the House bill, I would hope they might 
be expanded, and I think would in fact call for certain things, 
if in fact the fund grows beyond the 1.4. We at the FDIC 
recognize and understand, and it is not our intent to increase 
premiums or to assess the industry unnecessarily. So we would 
be obviously happy to work with Congress about any assessment 
credits or rebates back to the industry when it reaches a 
certain level.
    Mr. Shays. And just so I am clear on one part here, and I 
tend to reveal my ignorance by my questions, but I learn. As we 
increase the deposit insurance, we would then clearly be 
requiring more to be placed in the fund. Correct?
    Mr. Powell. I am sorry?
    Mr. Shays. As we allow for protection of from $100,000 to 
$130,000, we would want more money set aside?
    Mr. Powell. There would be more exposure. Yes, there would 
be more exposure. Fortunately, the fund now, if we in fact 
combine the two funds, it would not be material from a safety 
and soundness issue.
    Mr. Shays. And one last question, where is the greatest 
resistance to combining the two funds? I mean, this has been an 
issue that we have debated.
    Mr. Powell. Combining the funds--I have not heard anyone 
opposing merging the funds.
    Mr. Shays. So why--I mean, years ago we talked about this.
    Mr. Powell. I--
    Mr. Shays. Okay. Let's get it done.
    Mr. Bachus. Thank you. Is the gentleman through?
    Mr. Shays. I am yielding back. Thank you, and I appreciate 
your talking to me.
    Mr. Bachus. Chairman Powell, we beg your indulgence, the 
gentleman from Georgia would like to ask you one final 
question.
    Mr. Powell. Sure.
    Mr. Bachus. Then that will conclude the hearing. We also 
know that you have a plane to catch, so after this question, 
feel free to hurry from the room and do not feel that you have 
to stay here and talk to anyone. The Chairman of the full 
committee, Mr. Oxley, and I both want to tell you publicly how 
much we appreciate your professionalism and your ability. You 
are a credit to the Bush Administration. You are a credit to 
this country. We both strongly feel that you are a very good 
Chairman for the FDIC and have done a wonderful job.
    Mr. Powell. Thank you.
    Mr. Bachus. Thank you.
    Mr. Scott?
    Mr. Scott. Yes, thank you very much, Mr. Chairman, and 
thank you for your indulgence. I will be very brief, but I do 
want to say that your appearance before the committee has been 
very helpful and beneficial to me.
    I was just wondering in looking at H.R. 522, I notice that 
the maximum per account was raised from $100,000 to $130,000. 
However, when we get to the retirement accounts, that number is 
doubled to $260,000. I was just wondering, what data are you 
basing that on, and is it just in the Senate to get more 
Americans to invest and save for their retirement?
    Mr. Powell. I do not think there is any magic in that 
number, Congressman. History says that the Congress has been 
willing to give a special incentive to those who save. The 
Congress has decided that not only through 401(k)s and IRAs, 
but in fact deposit insurance for retirement accounts was 
raised in years past, ahead of the individual coverage. But we 
would be happy to listen to any number.
    Mr. Scott. Thank you.
    Mr. Bachus. Part of the reason--I will also add that the 
committee felt that in light of the history we had over the 
last two or three years of people losing their retirement 
security and retirement accounts, we felt good public policy 
would be to protect those retirement securities for senior 
citizens.
    Mr. Scott. Thank you.
    Mr. Bachus. This concludes our hearing. The hearing is 
adjourned.
    [Whereupon, at 3:45 p.m., the committee was adjourned.]


                            A P P E N D I X



                             March 4, 2003

[GRAPHIC] [TIFF OMITTED] T6853.001

[GRAPHIC] [TIFF OMITTED] T6853.002

[GRAPHIC] [TIFF OMITTED] T6853.003

[GRAPHIC] [TIFF OMITTED] T6853.004

[GRAPHIC] [TIFF OMITTED] T6853.005

[GRAPHIC] [TIFF OMITTED] T6853.006

[GRAPHIC] [TIFF OMITTED] T6853.007

[GRAPHIC] [TIFF OMITTED] T6853.008

[GRAPHIC] [TIFF OMITTED] T6853.009

[GRAPHIC] [TIFF OMITTED] T6853.010

[GRAPHIC] [TIFF OMITTED] T6853.011

[GRAPHIC] [TIFF OMITTED] T6853.012

[GRAPHIC] [TIFF OMITTED] T6853.013

[GRAPHIC] [TIFF OMITTED] T6853.014

[GRAPHIC] [TIFF OMITTED] T6853.015

[GRAPHIC] [TIFF OMITTED] T6853.016

[GRAPHIC] [TIFF OMITTED] T6853.017

[GRAPHIC] [TIFF OMITTED] T6853.018

[GRAPHIC] [TIFF OMITTED] T6853.019

