[Congressional Record Volume 141, Number 197 (Tuesday, December 12, 1995)]
[House]
[Pages H14340-H14342]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        BANK INSURANCE FUND AND DEPOSITOR PROTECTION ACT OF 1995

  Mrs. ROUKEMA. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 1574) to amend the Federal Deposit Insurance Act to exclude 
certain bank products from the definition of a deposit.
  The Clerk read as follows:

                               H.R. 1574

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Bank Insurance Fund and 
     Depositor Protection Act of 1995''.

     SEC. 2 DEFINITION OF DEPOSIT.

       Section 3(l)(5) of the Federal Deposit Insurance Act (12 
     U.S.C. 1813(l)(5) is amended--
       (1) in subparagraph (A), by striking ``and'' at the end;
       (2) in subparagraph (B), by striking the period at the end 
     and inserting``; and''; and
       (3) by adding at the end the following new subparagraph:
       ``(C) any liability of an insured depository institution 
     that arises under an annuity contract, the income of which 
     tax deferred under section 72 of the Internal Revenue Code of 
     1986.''.

     SEC. 3. EFFECTIVE DATE.

       The amendments made by section 2 shall apply to any 
     liability of an insured depository that arises under an 
     annuity contract issued on or after the date of enactment of 
     this Act.

  The SPEAKER pro tempore. Pursuant to the rule, the gentlewoman from 
New Jersey [Mrs. Roukema] will be recognized for 20 minutes, and the 
gentleman from Minnesota [Mr. Vento] will be recognized for 20 minutes.
  The Chair recognizes the gentlewoman from New Jersey [Mrs. Roukema].


                             General Leave

  Mrs. ROUKEMA. Mr. Speaker, I ask unanimous consent that all Members 
may have 5 legislative days within which to revise and extend their 
remarks and include extraneous material on H.R. 1574.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentlewoman from New Jersey?
  There was no objection.
  Mrs. ROUKEMA. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, as chairmwoman of the Financial Institutions & Consumer 
Credit Subcommittee I would like to commend you and my colleagues for 
considering H.R. 1574, The Bank Insurance Fund and Depositor Protection 
Act of 1995, on the suspension calendar.
  H.R. 1574 is a bill with broad bipartisan support that would clarify 
that a bank product known as the retirement CD is not to be covered by 
Federal deposit insurance. We strongly believe these instruments could 
pose serious safety and soundness for banks that issue them.
  Last year, certain banks received the authority to offer these 
retirement CDs. Banks that intend to offer them claim these instruments 
combine the tax-deferred income accumulation and lifetime payout 
features of a traditional annuity with the Federal deposit insurance 
guarantee normally associated with bank certificates of deposits [CDs].
  The problem is that the lifetime payment feature of the retirement CD 
exposes the issuing bank to a potential liability with an unknown 
duration raising safety and soundness issues. In addition, any deferred 
payments above the amount in the deposit account at maturity will not 
be federally insured. This is misleading to bank customers.
  There is no reason for the Federal Government to forego currently 
taxing the income produced by an annuity product while at the same time 
guaranteeing the payment of the principal plus the untaxed interest. 
This would constitute an expansion of the Federal deposit insurance net 
and, once again, raises serious safety and soundness concerns. 
Furthermore, the FDIC has indicated that they are neutral on the matter 
and understand that expanding the insurance net to these or similar 
products could have some unknown consequences.
  In addition, the Internal Revenue Service has raised other concerns 
about the instrument's tax-deferred status. After reviewing the 
components of the retirement CD, the IRS proposed to strip it of its 
tax-deferred status. Under U.S. tax law, the IRS believes that any 
favorable tax treatment for these instruments should be eliminated.
  In addition, the Congressional Budget Office carefully scrutinized 
this product and noted, in particular, that, and I quote, that 
substantial uncertainty exists about its potential tax consequences. 
The CBO concluded that, taken as a whole, the enactment of H.R. 1574 
should result in no significant budgetary impact, and therefore support 
the bill.
  As I stated earlier, this legislation has strong bipartisan support 
to ban these questionable products. There is strong agreement that 
these instruments place the insurance industry at a competitive 
disadvantage, as well pose serious disclosure problems for bank 
depositors.
  Finally, it is worth noting that this bill has companion legislation 
in the Senate, where it too, has broad support 

[[Page H14341]]
on both sides of the aisle. Given the time constraints that the House 
is presently under, I appreciate the bipartisan support on this 
legislation, and urge its adoption.
  Mr. Speaker, I include for the Record the memorandum I referred to 
earlier.
                                                November 21, 1995.
     Memorandum
     To: Steve Johnson, House Banking Committee.
     From: Mary Maginniss, Congressional Budget Office.
     Subject: H.R. 1574.
       As requested, I have reviewed H.R. 1574, the Bank Insurance 
     Fund and Depositor Protection Act of 1995. The bill would 
     amend the Federal Deposit Insurance Act to exclude certain 
     bank products--retirement certificates of deposits--from the 
     definition of a deposit. This exclusion would mean that a 
     bank or thrift would not pay insurance premiums on these 
     liabilities, but neither would the retirement certificate of 
     deposits (CDs) be protected by deposit insurance if an 
     institution were to fail. Based on this review, I would 
     expect that enacting H.R. 1574 would not result in any 
     significant budgetary impact.
       Retirement certificates of deposits combine features of a 
     traditional certificate of deposit (CD) with certain payment 
     terms and tax advantages of an annuity contract. The market 
     for annuities with a known maturity is substantial--over $1.6 
     trillion is outstanding--and the retirement (CD) has been 
     licensed to 12 banks. Nonetheless, the retirement CD has had 
     very limited sales to date. In particular, substantial 
     uncertainty exists about its potential tax consequences. The 
     Internal Revenue Service has issued a proposed ruling that 
     would limit the tax advantage of the retirement CD; a final 
     decision is expected early next year.
       Assuming that the final ruling is consistent with the 
     proposed rule, demand for the product would be limited 
     because without the tax advantage, sales of retirement CDs 
     would be expected to have little appeal. CBO projects that 
     the liabilities of banks and thrifts would include few 
     retirement CDs, and only a negligible amount of the premiums 
     such institutions pay for deposit insurance in the future 
     would be to cover losses in retirement CDs. Similarly, I 
     expect the deposit insurance funds to face minimal risk of 
     reimbursing the few depositors who might own retirement CDS 
     in the event of a future bank failure. As a result, enactment 
     of H.R. 1574 should result in no significant budgetary 
     impact.

  Mr. Speaker, I reserve the balance of my time.
  Mr. VENTO. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I, as a cosponsor of the legislation, rise in support of 
this measure and commend the gentlewoman from New Jersey [Mrs. 
Roukema], our subcommittee chairwoman, for her effort on this matter. 
This is a bipartisan matter that would clarify that the bank products 
known as retirement CD's are not to be covered by Federal deposit 
insurance. We introduced this legislation earlier this year because of 
concerns that these financial savings instruments could pose real 
safety and soundness problems for the banks that issue them and thus a 
significant liability to the U.S. taxpayers.
  As my colleagues may be aware, recently several bank and insurance 
experts collaborated on creating this new type of financial instrument 
intended to combine the tax deferred income accumulation features of an 
annuity contract with the deposit insurance protection of a bank 
deposit. This has raised serious questions and concerns within the 
Congress, the Internal Revenue Service, and with those engaged in the 
business and enterprise providing retirement products without the 
benefit of Federal deposit insurance.
  Mr. Speaker, this is a $1 trillion industry. I think that most of us 
understand that it has been operating for years without deposit 
insurance. Those that engage and invest in such instruments take some 
risk in the process. I do not think it is necessary for the deposit 
insurance system to be involved in this particular enterprise. As a 
consequence, I think if we are going to do that, we ought to do it on 
an affirmative basis.

                              {time}  1900

  That we ought to, in fact, extend the deposit insurance and say we 
are now going to fold the insurance aspect of anmnities into banks and 
give them that power and defer the taxation and deal with it on that 
basis. That, clearly, is not the decision that should be made on an ad 
hoc basis without the involvement of Congress.
  I think most of us have in the background of our mind problems that 
financial institutions have experienced in recent years, which has 
involved, obviously, a significant outlay of taxpayers dollars to deal 
with the shortfalls in terms of deposit insurance funds.
  With this in mind, and with the idea that we are working in 
collaboration and in coordination with, in fact, tax policies and laws, 
Mr. Speaker, I, of course, rise in support and ask Members to support 
this important measure.
  I yield myself such time as I may consume. As a cosponsor of this 
legislation, I rise in support of H.R. 1574 and commend our 
subcommittee chairwomen Marge Roukema for her effort on this matter. 
H.R. 1574 is of course a bipartisan bill that would clarify that a bank 
product known as the retirement CD is not to be covered by Federal 
deposit insurance. We introduced this legislation earlier this year 
because of concerns that these financial savings instruments could pose 
real safety and soundness problems for the banks that issue them and 
thus, a significant liability to U.S. taxpayers.
  As my colleagues may be aware, recently, several banking and 
insurance experts collaborated on creating this new type of financial 
instrument intended to combine the tax-deferred income accumulation 
features of an annuity contract with the deposit insurance protection 
of a bank deposit. This raised serious concerns within the Congress, 
the Internal Revenue Services and with those engaged in the business 
and enterprise of providing retirement products without the benefit of 
federal deposit insurance.
  There is not a solid public policy basis for the Federal Government 
to forego currently taxing the income produced by an annuity product 
and at the same time guaranteeing the payment of the principal plus the 
untaxed interests in a differential manner to other retirement 
annuities. The annuity market works without the need for Federal 
deposit insurance guarantees, and there is no reason for the Federal 
deposit insurance funds to be extended to cover the risk of this 
trillion dollar market. If it is the congressional policy and loan 
judgment to extend deposit insurance to such products, then that ought 
to be a positive decision not an ad hoc action by individual financial 
institutions.
  I would note for the record that from the beginning, we have stressed 
that the language of the bill does not prevent anyone from offering 
this product. It simply provides that annuity contracts issued by 
insured depository institutions on which the income is tax deferred 
shall not be considered as deposits eligible to receive FDIC deposit 
insurance coverage.
  The U.S. Internal Revenue Service has issued proposed rules making 
clear that certain bank-issued annuities are not entitled to Federal 
tax deferral. For products which are determined to be subject to such 
rules, H.R. 1574 should not have any effect. Unless the product 
receives tax deferral as an annuity, H.R. 1574 would not be applicable. 
Thus there is no conflict, duplication, or inconsistency between the 
prospective IRS ruling expected sometime in the spring of next year and 
the legislation before us today. The two policies should compliment 
each other.
  We need to enact this legislation now, before Deposit Insurance 
retirement CD's proliferate, thus exposing the FDIC deposit insurance 
to the potential of inordinate risk and expenditures in the future. I 
urge my colleagues to support this legislation and reserve the balance 
of my time.
  Mr. Speaker, I reserve the balance of my time.
  Mrs. ROUKEMA. Mr. Speaker, I yield 1 minute to the gentleman from 
Michigan [Mr. Chrysler], a member of the committee.
  Mr. CHRYSLER. Mr. Speaker, I rise in support of H.R. 1574, as a 
cosponsor of the Bank Insurance Fund and Depositor Protection Act. This 
bill, introduced by my colleague on the Committee on Banking and 
Financial Services, the gentlewoman from New Jersey, Congresswoman 
Marge Roukema, would amend the Federal Deposit Insurance Act to exclude 
from deposit insurance eligibility a select class of investments known 
as retirement certificates of deposit. This issue is not related to the 
banks selling insurance discussions, which are presently underway.
  Mr. Speaker, I have no objections to banks offering this product. 
However, I believe these retirement CD's should not be covered under 
FDIC insurance. There is an uneven playing field when one entity can 
sell a product, for example the retirement CD's, with FDIC insurance, 
and another entity can only sell the products without taxpayer-backed 
insurance.
  Mr. Speaker, I would like to commend the gentlewoman from New Jersey 
[Mrs. Roukema] on her efforts to have this bill reach the floor. I also 


[[Page H14342]]
want to thank the majority leader for placing this bill on a very 
crowded congressional calendar. I have high hopes that the other body 
will act on this important legislation in a timely manner.
  Mr. VENTO. Mr. Speaker, I have no further requests for time, and I 
reserve the balance of my time.
  Mrs. ROUKEMA. Mr. Speaker, I yield 2 minutes to the gentleman from 
Delaware [Mr. Castle], a member of the committee.
  (Mr. CASTLE asked and was given permission to revise and extend his 
remarks.)
  Mr. CASTLE. Mr. Speaker, I thank the gentlewoman for yielding me 
time, and with due respect to her and to the gentleman from the other 
side, I have some questions, at least, about this legislation. I do not 
intend to oppose it at this time, but the bottom line is that I have 
looked at this with some degree of care, and I have learned some 
interesting facts about it.
  For example, the Office of the Comptroller of the Currency, which, of 
course, is the regulatory agency for national banks, has confirmed that 
national banks have authority to issue the retirement CD under the 
expressed statutory powers of the National Bank Act, and the FDIC has 
ruled that the retirement CD qualifies as an insured deposit under the 
Federal Deposit Act.
  It also has been supported, and I assume still is, by the American 
Bankers Association, the Independent Bankers Association of America, 
Independent Bankers Associations of various States, and America's 
community bankers. In fact, the small community banks have found this 
as a very good asset to be able to offer to their customers, and, as a 
result, are very supportive of it.
  Mr. Speaker, I have heard the arguments here, and have heard them 
before, concerning the issue of deposit insurance. And while I do not 
know enough about that to be able to argue it vehemently with anybody, 
I would suggest that that is a bit of a gray area in terms of what 
could or could not be done.
  Obviously, insurance companies and others who might issue annuities 
of a different sort might be opposed to this, but I am concerned that 
we are rushing forward. I must note this piece of legislation did not 
go through any subcommittee or committee markup at all. I do not even 
know if it went through any hearings at all at that level. So, as a 
result, I think we need to post on the Record someplace that there 
perhaps is another side to this and some questions that need to be 
raised.
  So having said that, hopefully, before it is all said and done, 
whatever legislation comes out of this will be something which is 
correct and which is in the best interest of all aspects of the 
community dealing with it.
  Mr. KANJORSKI. Mr. Speaker, as an original cosponsor of H.R. 1574, 
the Bank Insurance Fund and Depositor Protection Act, I rise in strong 
support of this legislation, and I urge all my colleagues to support 
it.
  It is entirely appropriate that H.R. 1574 is on the Suspension 
Calendar today, because it is genuinely bipartisan legislation, 
introduced by Congresswoman Marge Roukema, the chair of the Financial 
Institutions Subcommittee, along with the ranking Democratic member of 
the subcommittee, Congressman Bruce Vento, myself, and Congressman Bill 
McCollum of Florida.
  I want to commend Chairwoman Roukema, as well as full committee 
Chairman Jim Leach and full committee and subcommittee ranking members 
Henry Gonzalez and Bruce Vento, for their bipartisan cooperation on 
this legislation. If all legislation considered by the 104th Congress 
was handled in such a cooperative, bipartisan fashion, we would not be 
facing gridlock on the budget and so many other issues.
  H.R. 1574 is a very short, and simple bill. It is designed to 
permanently close a loophole which crafty lawyers attempted to use to 
create an insurance product, commonly known as a retirement CD, with 
both Federal deposit insurance and special tax-deferred status.
  Fortunately, the effort to create this kind of unique retirement CD 
was largely thwarted by the eagle eyes of the Internal Revenue Service, 
which has correctly issued proposed rules stipulating that such 
instruments should not be allowed special tax-deferred status.
  While the IRS' action has put a halt to the proliferation of these 
retirement CD's, there are other important policy reasons why their 
inssuance should not be allowed.
  First, they expose federally insured financial institutions to 
potential liabilities of unknown size which raises safety and soundness 
concerns for the institutions and the Federal Deposit Insurance 
Corporation's deposit insurance fund. If Federal deposit insurance for 
retirement CD's is allowed, the Federal Government would, in effect, 
become the guarantor of which is now a private pension system. The 
deposit insurance system should not take on this enormous contingent 
liability.
  Second, the unusual hybrid nature of these instruments, which combine 
features of traditional uninsured insurance annuities with certificates 
of deposit, raises serious disclosure issues for consumers who may not 
understand what they are purchasing and the extent to which it is 
insured by the FDIC. The FDIC has determined, for example, that deposit 
insurance coverage would not extend to the lifetime payment feature of 
such products, because that could constitute a liability substantially 
in excess of the amount on deposit. This is the kind of nuance most 
consumers would not understand.
  Third, the issuance of these certificates could create an unlevel 
playing field in which insurance companies are at a severe competitive 
disadvantage to banks because bank annuity products would be insured by 
the FDIC, while annuity products offered by insurance companies would 
not. The market for traditional annuities already exceeds $1.5 
trillion, and was $125 billion in 1993 alone. This makes it clear that 
neither banks nor insurance companies need Federal deposit insurance to 
induce customers to purchase annuities.
  It is for these reasons that the bipartisan leadership of the House 
Banking Committee believes that this loophole needs to be permanently 
closed. H.R. 1574 accomplishes this goal by specifically defining this 
kind of product as ineligible for Federal deposit insurance.
  It is important to note, Mr. Speaker, that H.R. 1574 does not 
preclude anyone from offering this kind of product for sale. It merely 
stipulates that annuity contracts issued by insured depository 
institutions on which the income is tax deferred are not simultaneously 
eligible for Federal deposit insurance.
  Mr. Speaker, it is important that we act now, to clear the air, 
before these kinds of products proliferate. Companion legislation, S. 
799, has been introduced by a bipartisan group in the other body, 
Senator Al D'Amato, chairman of the Senate Banking Committee, and 
Senator Chris Dodd. Consequently there is good reason to believe that 
if the House approves H.R. 1574 it will be favorably considered by the 
Senate.
  Mr. Speaker, we all learned as children that you can't have your cake 
and eat it too. That is exactly what the creators of the retirement CD 
wanted to do, they wanted to create a tax-deferred annuity which also 
had Federal deposit insurance. H.R. 1574 simply tells them they have to 
choose one Federal benefit or the other, but they cannot have both. 
H.R. 1574 is fair, it is equitable, and it should be supported by all 
Members.
  Mrs. ROUKEMA. Mr. Speaker, those who have requested time are not here 
on the floor at this moment, so I yield back the balance of my time.
  Mr. VENTO. Mr. Speaker, I have no further requests for time, and I 
yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentlewoman from New Jersey [Mrs. Roukema] that the House suspend the 
rules and pass the bill, H.R. 1574.
  The question was taken; and (two-thirds having voted in favor 
thereof) the rules were suspended and the bill was passed.
  A motion to reconsider was laid on the table.

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