[Congressional Record Volume 148, Number 15 (Friday, February 15, 2002)]
[Senate]
[Page S895]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




            THE SAFE AND FAIR DEPOSIT INSURANCE ACT OF 2002

  Mr. REED. Mr. President, I rise in strong support of the Johnson-
Hagel-Reed-Enzi Safe and Fair Deposit Insurance Act of 2002, SFDIA, and 
I urge my colleagues to support it. I am proud to be one of the authors 
of this legislation, as I believe it will continue to ensure a strong 
and safe insurance system for our banks, and most importantly for the 
consumers that put their trust in that system. The legislation before 
us also seeks to end the pro-cyclical method now in force, which tends 
to burden institutions in bad economic times, and not prepare for the 
future during good economic times. We need to change that, and I think 
this bill begins to finally address this important issue in a very 
thoughtful manner.
  The bill that my colleagues and I have introduced has five major 
components. The first element addresses the most non-controversial 
aspect of this issue, and that is merging of the two insurance funds. 
This will obviously strengthen the reserve fund for all banks and 
savings institutions, rather than diffusing that strength between two 
funds. The second component is that of coverage limits. Although this 
issue has attracted quite a bit of discussion and controversy over the 
past few years, this is nonetheless an important issue for many banks 
and consumers alike. In this section, the legislation authorizes the 
level of general coverage to rise to $130,000, by indexing for 
inflation from 1974, when the level of coverage was at $40,000. Going 
forward, the bill proposes to index coverage for inflation every five 
years in increments of $10,000. The bill also suggests that coverage 
for retirement accounts be set at $250,000 now, and that those accounts 
also be subject to indexing in the future. Lastly, on coverage issues, 
the legislation would allow for additional coverage for municipal 
deposits beyond the $130,000 level.
  The SFDI Act would also allow for greater flexibility for the FDIC to 
charge insurance premiums. Since 1996, the FDIC has been prohibited 
from charging premiums to banks that have the highest rating, as long 
as the reserve ratio was above the ``hard target'' of 1.25 percent. Our 
legislation would remove that prohibition, as well as effectively 
eliminating the hard target, and would instead substitute a range for 
the fund. Again, these actions will lend the FDIC the necessary 
flexibility to manage the funds in a much more institution-friendly 
manner, particularly by relieving pressure on them during the worst 
business cycles.
  In addition, the FDIC will be able to give a one-time assessment 
credit to institutions, as well as allow for ongoing credits to manage 
the fund. These credits will in all likelihood give most institutions, 
if they are well-managed and well-capitalized, the ability to avoid 
premiums for several years down the road. The FDIC will also be 
authorized to provide cash rebates to institutions should the fund ever 
exceed 1.50 percent.
  Although I would prefer to address the issue of coverage for 
municipal deposits in another context, I am confident that during the 
upcoming legislative process there will be a good debate on the issue, 
and the Senate will be able to work its will on the issue. I think it 
is important to note that the introduction of this bill will mark the 
beginning of a strong, vigorous and positive discussion on the vital 
issue of deposit insurance. This has become the cornerstone of our 
banking system's integrity, and it is imperative that the U.S. Congress 
insure that it remain strong, healthy, and workable for many years to 
come for both financial institutions and consumers alike.

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