[Congressional Record Volume 144, Number 88 (Tuesday, July 7, 1998)]
[Senate]
[Pages S7579-S7580]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. FAIRCLOTH:
  S. 2270. A bill to amend the Federal Deposit Insurance Act with 
respect to raising the level of the Deposit Insurance Fund reserve 
ratio and with respect to refunds of excess assessments, and for other 
purposes; to the Committee on Banking, Housing, and Urban Affairs.


    Legislation to Provide a Refund of Excess Reserves in the Bank 
                             Insurance Fund

  Mr. FAIRCLOTH. Mr. President, in 1991, the Congress reformed the FDIC 
and mandated that the fund keep a reserve to deposit ratio of 1.25%. 
Fortunately, no government funds were used to keep the FDIC solvent 
when this was mandated in 1991. It was thought by many that it would 
take years for the fund to reach that level, but, enough funds flowed 
into the Bank Insurance Fund that this reserve level was met relatively 
quickly.
  What has been happening for the past few years, however, is that the 
Fund is generating billions in interest and is now well over the 
designated reserve ratio of 1.25%. The Fund can only be used to provide 
for losses to the insurance fund, however, because the BIF is 
considered on budget these excess funds are effectively being used to 
exaggerate the government surplus. The law envisioned a stop in the 
need for additional premiums once that fund hit its legal limit, but it 
never made provisions for excess reserves building and building year 
after year.
  Rather than this money piling up in the Bank Insurance Fund, I think 
it would be put to greater use if these funds were recycled back into 
the banking system, and back into our economy.
  Today, I am introducing legislation that would require that the Fund 
provide a refund of this excess revenue when it reaches a reserve level 
of 1.5%. This means that the Fund could maintain a cushion of 20% above 
the level that is required by law, but once that outer level is 
reached, the excess would have to be refunded.
  Mr. President, the Bank Insurance Fund is composed entirely of non-
government funds. The money in this Fund is derived from assessments on 
the banking industry. The Congress chose a level at which the Fund 
could operate safely, and that level is being met, in fact, it is being 
exceeded. At the end of 1997, the Fund held nearly

[[Page S7580]]

$28 billion. I think it is wrong, however, to use the money paid by the 
banking industry to earn revenue for the government and not recycle 
that money back into the economy. The Fund earned nearly $1.5 billion 
in interest last year.
  If this amount of money were put back into the economy, $1.5 billion 
in capital could sustain another $15 billion in loans.
  I do not know when the Fund will reach 1.5% reserve to deposit ratio. 
The FDIC is projecting that the reserve ratio could be anywhere between 
1.36% and 1.43% by the end of this year. Clearly, my legislation means 
that sometime within the next two years, there will be a level reached 
at which this money will be put back into the economy.
  When I first came to Washington, I noticed that many believed money 
was simply appropriated. Actually, money has to be created. Somebody, 
somewhere had to do something, drive a truck, wait on a table, build a 
house--somebody had to create wealth. This is the point of this 
legislation--we need to send money back into the private sector so that 
it can be used to create new wealth, new jobs and new opportunities. 
Letting this money accumulate in Washington will not create new 
opportunities for the American people. That is why I am introducing 
this legislation, which I think is balancing the need for both a safe 
and sound deposit insurance fund and the need to keep dollars in 
banking system for new lending and new growth.

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