[Congressional Record Volume 148, Number 66 (Tuesday, May 21, 2002)]
[House]
[Pages H2787-H2803]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FEDERAL DEPOSIT INSURANCE REFORM ACT OF 2002
Mr. OXLEY. Mr. Speaker, I move to suspend the rules and pass the bill
(H.R. 3717) to reform the Federal deposit insurance system, and for
other purposes, as amended.
The Clerk read as follows:
H.R. 3717
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Federal
Deposit Insurance Reform Act of 2002''.
(b) Table of Contents.--The table of contents for this Act
is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Merging the BIF and SAIF.
Sec. 3. Increase in deposit insurance coverage.
Sec. 4. Setting assessments and repeal of special rules relating to
minimum assessments and free deposit insurance.
Sec. 5. Replacement of fixed designated reserve ratio with reserve
range.
Sec. 6. Requirements applicable to the risk-based assessment system.
Sec. 7. Refunds, dividends, and credits from Deposit Insurance Fund.
Sec. 8. Deposit Insurance Fund restoration plans.
Sec. 9. Regulations required.
Sec. 10. Studies of FDIC structure and expenses and certain activities
and further possible changes to deposit insurance system.
Sec. 11. Technical and conforming amendments to the Federal Deposit
Insurance Act relating to the merger of the BIF and SAIF.
Sec. 12. Other technical and conforming amendments relating to the
merger of the BIF and SAIF.
SEC. 2. MERGING THE BIF AND SAIF.
(a) In General.--
(1) Merger.--The Bank Insurance Fund and the Savings
Association Insurance Fund shall be merged into the Deposit
Insurance Fund.
(2) Disposition of assets and liabilities.--All assets and
liabilities of the Bank Insurance Fund and the Savings
Association Insurance Fund shall be transferred to the
Deposit Insurance Fund.
(3) No separate existence.--The separate existence of the
Bank Insurance Fund and the Savings Association Insurance
Fund shall cease on the effective date of the merger thereof
under this section.
(b) Repeal of Outdated Merger Provision.--Section 2704 of
the Deposit Insurance Funds Act of 1996 (12 U.S.C. 1821 note)
is repealed.
(c) Effective Date.--This section shall take effect on the
first day of the first calendar quarter that begins after the
end of the 90-day period beginning on the date of the
enactment of this Act.
SEC. 3. INCREASE IN DEPOSIT INSURANCE COVERAGE.
(a) In General.--Section 11(a)(1) of the Federal Deposit
Insurance Act (12 U.S.C. 1821(a)(1)) is amended--
(1) by striking subparagraph (B) and inserting the
following new subparagraph:
``(B) Net amount of insured deposit.--The net amount due to
any depositor at an insured depository institution shall not
exceed the standard maximum deposit insurance amount as
determined in accordance with subparagraphs (C), (D), (E) and
(F) and paragraph (3).''; and
(2) by adding at the end the following new subparagraphs:
``(E) Standard maximum deposit insurance amount defined.--
For purposes of this Act, the term `standard maximum deposit
insurance amount' means--
``(i) until the effective date of final regulations
prescribed pursuant to section 9(a)(2) of the Federal Deposit
Insurance Reform Act of 2002, $100,000; and
``(ii) on and after such effective date, $130,000, adjusted
as provided under subparagraph (F).
``(F) Inflation adjustment.--
``(i) In general.--By April 1 of 2005, and the 1st day of
each subsequent 5-year period, the Board of Directors and the
National Credit Union Administration Board shall jointly
prescribe the amount by which the standard maximum deposit
insurance amount and the standard maximum share insurance
amount (as defined in section 207(k) of the Federal Credit
Union Act) applicable to any depositor at an insured
depository institution shall be increased by calculating the
product of--
``(I) $130,000; and
``(II) the ratio of the value of the Personal Consumption
Expenditures Chain-Type Index (or any successor index
thereto), published by the Department of Commerce, as of
December 31 of the year preceding the year in which the
adjustment is calculated under this clause, to the value
of such index as of the date this subparagraph takes
effect.
``(ii) Rounding.--If the amount determined under clause
(ii) for any period is not a multiple of $10,000, the amount
so determined shall be rounded to the nearest $10,000.
``(iii) Publication and report to the congress.--Not later
than April 5 of any calendar year in which an adjustment is
required to be calculated under clause (i) to the standard
maximum deposit insurance amount and the standard maximum
share insurance amount under such clause, the Board of
Directors and the National Credit Union Administration Board
shall--
``(I) publish in the Federal Register the standard maximum
deposit insurance
[[Page H2788]]
amount, the standard maximum share insurance amount, and the
amount of coverage under paragraph (3)(A) and section
207(k)(3) of the Federal Credit Union Act, as so calculated;
and
``(II) jointly submit a report to the Congress containing
the amounts described in subclause (I).
``(iv) 6-month implementation period.--Unless an Act of
Congress enacted before July 1 of the calendar year in which
an adjustment is required to be calculated under clause (i)
provides otherwise, the increase in the standard maximum
deposit insurance amount and the standard maximum share
insurance amount shall take effect on January 1 of the year
immediately succeeding such calendar year.''.
(b) Coverage for Certain Employee Benefit Plan Deposits.--
Section 11(a)(1)(D) of the Federal Deposit Insurance Act (12
U.S.C. 1821(a)(1)(D)) is amended to read as follows:
``(D) Coverage for certain employee benefit plan
deposits.--
``(i) Pass-through insurance.--The Corporation shall
provide pass-through deposit insurance for the deposits of
any employee benefit plan.
``(ii) Prohibition on acceptance of benefit plan
deposits.--An insured depository institution that is not well
capitalized or adequately capitalized may not accept employee
benefit plan deposits.
``(iii) Definitions.--For purposes of this subparagraph,
the following definitions shall apply:
``(I) Capital standards.--The terms `well capitalized' and
`adequately capitalized' have the same meanings as in section
38.
``(II) Employee benefit plan.--The term `employee benefit
plan' has the same meaning as in paragraph (8)(B)(ii), and
includes any eligible deferred compensation plan described in
section 457 of the Internal Revenue Code of 1986.
``(III) Pass-through deposit insurance.--The term `pass-
through deposit insurance' means, with respect to an employee
benefit plan, deposit insurance coverage provided on a pro
rata basis to the participants in the plan, in accordance
with the interest of each participant.''.
(c) Doubling of Deposit Insurance for Certain Retirement
Accounts.--Section 11(a)(3)(A) of the Federal Deposit
Insurance Act (12 U.S.C. 1821(a)(3)(A)) is amended by
striking ``$100,000'' and inserting ``2 times the standard
maximum deposit insurance amount (as determined under
paragraph (1))''.
(d) Increased Insurance Coverage for Municipal Deposits.--
Section 11(a)(2) of the Federal Deposit Insurance Act (12
U.S.C. 1821(a)(2)) is amended--
(1) in subparagraph (A)--
(A) by moving the margins of clauses (i) through (v) 4 ems
to the right;
(B) by striking, in the matter following clause (v), ``such
depositor shall'' and all that follows through the period;
and
(C) by striking the semicolon at the end of clause (v) and
inserting a period;
(2) by striking ``(2)(A) Notwithstanding'' and all that
follows through ``a depositor who is--'' and inserting the
following:
``(2) Municipal depositors.--
``(A) In general.--Notwithstanding any limitation in this
Act or in any other provision of law relating to the amount
of deposit insurance available to any 1 depositor--
``(i) a municipal depositor shall, for the purpose of
determining the amount of insured deposits under this
subsection, be deemed to be a depositor separate and distinct
from any other officer, employee, or agent of the United
States or any public unit referred to in subparagraph (E);
and
``(ii) except as provided in subparagraph (B), the deposits
of a municipal depositor shall be insured in an amount equal
to the standard maximum deposit insurance amount (as
determined under paragraph (1)).
``(B) In-state municipal depositors.--In the case of the
deposits of an in-State municipal depositor described in
clause (ii), (iii), (iv), or (v) of subparagraph (E) at an
insured depository institution, such deposits shall be
insured in an amount not to exceed the lesser of--
``(i) $2,000,000; or
``(ii) the sum of the standard maximum deposit insurance
amount and 80 percent of the amount of any deposits in excess
of the standard maximum deposit insurance amount.
``(C) Municipal deposit parity.--No State may deny to
insured depository institutions within its jurisdiction the
authority to accept deposits insured under this paragraph, or
prohibit the making of such deposits in such institutions by
any in-State municipal depositor.
``(D) In-state municipal depositor defined.--For purposes
of this paragraph, the term `in-State municipal depositor'
means a municipal depositor that is located in the same State
as the office or branch of the insured depository institution
at which the deposits of that depositor are held.
``(E) Municipal depositor.--In this paragraph, the term
`municipal depositor' means a depositor that is--'';
(3) by striking ``(B) The'' and inserting the following:
``(F) Authority to limit deposits.--The''; and
(4) by striking ``depositor referred to in subparagraph (A)
of this paragraph'' each place such term appears and
inserting ``municipal depositor''.
(e) Technical and Conforming Amendment Relating to
Insurance of Trust Funds.--Paragraphs (1) and (3) of section
7(i) of the Federal Deposit Insurance Act (12 U.S.C. 1817(i))
are each amended by striking ``$100,000'' and inserting ``the
standard maximum deposit insurance amount (as determined
under section 11(a)(1))''.
(f) Other Technical and Conforming Amendments.--
(1) Section 11(m)(6) of the Federal Deposit Insurance Act
(12 U.S.C. 1821(m)(6)) is amended by striking ``$100,000''
and inserting ``an amount equal to the standard maximum
deposit insurance amount''.
(2) Subsection (a) of section 18 of the Federal Deposit
Insurance Act (12 U.S.C. 1828(a)) is amended to read as
follows:
``(a) Insurance Logo.--
``(1) Insured depository institutions.--Each insured
depository institution shall display at each place of
business maintained by that institution a sign or signs
relating to the insurance of the deposits of the
institution, in accordance with regulations to be
prescribed by the Corporation.
``(2) Regulations.--The Corporation shall prescribe
regulations to carry out this subsection, including
regulations governing the substance of signs required by
paragraph (1) and the manner of display or use of such signs.
``(3) Penalties.--For each day that an insured depository
institution continues to violate this subsection or any
regulation issued under this subsection, it shall be subject
to a penalty of not more than $100, which the Corporation may
recover for its use.''.
(3) Section 43(d) of the Federal Deposit Insurance Act (12
U.S.C. 1831t(d)) is amended by striking ``$100,000'' and
inserting ``an amount equal to the standard maximum deposit
insurance amount''.
(4) Section 6 of the International Banking Act of 1978 (12
U.S.C. 3104) is amended--
(A) by striking ``$100,000'' each place such term appears
and inserting ``an amount equal to the standard maximum
deposit insurance amount''; and
(B) by adding at the end the following new subsection:
``(e) Standard Maximum Deposit Insurance Amount Defined.--
For purposes of this section, the term `standard maximum
deposit insurance amount' means the amount of the maximum
amount of deposit insurance as determined under section
11(a)(1) of the Federal Deposit Insurance Act.''.
(g) Conforming Change to Credit Union Share Insurance
Fund.--
(1) In general.--Section 207(k) of the Federal Credit Union
Act (12 U.S.C. 1787(k)) is amended--
(A) by striking ``(k)(1)'' and all that follows through the
end of paragraph (1) and inserting the following:
``(k) Insured Amounts Payable.--
``(1) Net insured amount.--
``(A) In general.--Subject to the provisions of paragraph
(2), the net amount of share insurance payable to any member
at an insured credit union shall not exceed the total amount
of the shares or deposits in the name of the member (after
deducting offsets), less any part thereof which is in excess
of the standard maximum share insurance amount, as determined
in accordance with this paragraph and paragraphs (5) and (6),
and consistently with actions taken by the Federal Deposit
Insurance Corporation under section 11(a) of the Federal
Deposit Insurance Act.
``(B) Aggregation.--Determination of the net amount of
share insurance under subparagraph (A), shall be in
accordance with such regulations as the Board may prescribe,
and, in determining the amount payable to any member, there
shall be added together all accounts in the credit union
maintained by that member for that member's own benefit,
either in the member's own name or in the names of others.
``(C) Authority to define the extent of coverage.--The
Board may define, with such classifications and exceptions as
it may prescribe, the extent of the share insurance coverage
provided for member accounts, including member accounts in
the name of a minor, in trust, or in joint tenancy.'';
(B) in paragraph (2)--
(i) in subparagraph (A)--
(I) in clauses (i) through (v), by moving the margins 4 ems
to the right;
(II) in the matter following clause (v), by striking ``his
account'' and all that follows through the period; and
(III) by striking the semicolon at the end of clause (v)
and inserting a period;
(ii) by striking ``(2)(A) Notwithstanding'' and all that
follows through ``a depositor or member who is--'' and
inserting the following:
``(2) Municipal depositors or members.--
``(A) In general.--Notwithstanding any limitation in this
Act or in any other provision of law relating to the amount
of insurance available to any 1 depositor or member, deposits
or shares of a municipal depositor or member shall be insured
in an amount equal to the standard maximum share insurance
amount (as determined under paragraph (5)), except as
provided in subparagraph (B).
``(B) In-state municipal depositors.--In the case of the
deposits of an in-State municipal depositor described in
clause (ii), (iii), (iv), or (v) of subparagraph (E) at an
insured credit union, such deposits shall be insured in an
amount equal to the lesser of--
``(i) $2,000,000; or
``(ii) the sum of the standard maximum deposit insurance
amount and 80 percent of the
[[Page H2789]]
amount of any deposits in excess of the standard maximum
deposit insurance amount.
``(C) Rule of construction.--No provision of this paragraph
shall be construed as authorizing an insured credit union to
accept the deposits of a municipal depositor in an amount
greater than such credit union is authorized to accept under
any other provision of Federal or State law.
``(D) In-state municipal depositor defined.--For purposes
of this paragraph, the term `in-State municipal depositor'
means a municipal depositor that is located in the same State
as the office or branch of the insured credit union at which
the deposits of that depositor are held.
``(E) Municipal depositor.--In this paragraph, the term
`municipal depositor' means a depositor that is--'';
(iii) by striking ``(B) The'' and inserting the following:
``(F) Authority to limit deposits.--The''; and
(iv) by striking ``depositor or member referred to in
subparagraph (A)'' and inserting ``municipal depositor or
member''; and
(C) by adding at the end the following new paragraphs:
``(4) Coverage for certain employee benefit plan
deposits.--
``(A) Pass-through insurance.--The Administration shall
provide pass-through share insurance for the deposits or
shares of any employee benefit plan.
``(B) Prohibition on acceptance of deposits.--An insured
credit union that is not well capitalized or adequately
capitalized may not accept employee benefit plan deposits.
``(C) Definitions.--For purposes of this paragraph, the
following definitions shall apply:
``(i) Capital standards.--The terms `well capitalized' and
`adequately capitalized' have the same meanings as in section
216(c).
``(ii) Employee benefit plan.--The term `employee benefit
plan'--
``(I) has the meaning given to such term in section 3(3) of
the Employee Retirement Income Security Act of 1974;
``(II) includes any plan described in section 401(d) of the
Internal Revenue Code of 1986; and
``(III) includes any eligible deferred compensation plan
described in section 457 of the Internal Revenue Code of
1986.
``(iii) Pass-through share insurance.--The term `pass-
through share insurance' means, with respect to an employee
benefit plan, insurance coverage provided on a pro rata basis
to the participants in the plan, in accordance with the
interest of each participant.
``(D) Rule of construction.--No provision of this paragraph
shall be construed as authorizing an insured credit union to
accept the deposits of an employee benefit plan in an amount
greater than such credit union is authorized to accept under
any other provision of Federal or State law.
``(5) Standard maximum share insurance amount defined.--For
purposes of this Act, the term `standard maximum share
insurance amount' means--
``(A) until the effective date of final regulations
prescribed pursuant to section 9(a)(2) of the Federal Deposit
Insurance Reform Act of 2002, $100,000; and
``(B) on and after such effective date, $130,000, adjusted
as provided under section 11(a)(1)(F) of the Federal Deposit
Insurance Act.''.
(2) Doubling of share insurance for certain retirement
accounts.--Section 207(k)(3) of the Federal Credit Union Act
(12 U.S.C. 1787(k)(3)) is amended by striking ``$100,000''
and inserting ``2 times the standard maximum share insurance
amount (as determined under paragraph (1))''.
(h) Effective Date.--This section and the amendments made
by this section shall take effect on the date the final
regulations required under section 9(a)(2) take effect.
SEC. 4. SETTING ASSESSMENTS AND REPEAL OF SPECIAL RULES
RELATING TO MINIMUM ASSESSMENTS AND FREE
DEPOSIT INSURANCE.
(a) Setting Assessments.--Section 7(b)(2) of the Federal
Deposit Insurance Act (12 U.S.C. 1817(b)(2)) is amended--
(1) by striking subparagraphs (A) and (B) and inserting the
following new subparagraphs:
``(A) In general.--The Board of Directors shall set
assessments for insured depository institutions in such
amounts as the Board of Directors may determine to be
necessary or appropriate, subject to subparagraph (D).
``(B) Factors to be considered.--In setting assessments
under subparagraph (A), the Board of Directors shall consider
the following factors:
``(i) The estimated operating expenses of the Deposit
Insurance Fund.
``(ii) The estimated case resolution expenses and income of
the Deposit Insurance Fund.
``(iii) The projected effects of the payment of assessments
on the capital and earnings of insured depository
institutions.
``(iv) the risk factors and other factors taken into
account pursuant to paragraph (1) under the risk-based
assessment system, including the requirement under such
paragraph to maintain a risk-based system.
``(v) Any other factors the Board of Directors may
determine to be appropriate.''; and
(2) by inserting after subparagraph (C) the following new
subparagraph:
``(D) Base rate for assessments.--
``(i) In general.--In setting assessment rates pursuant to
subparagraph (A), the Board of Directors shall establish a
base rate of not more than 1 basis point (exclusive of any
credit or dividend) for those insured depository institutions
in the lowest-risk category under the risk-based assessment
system established pursuant to paragraph (1).
``(ii) Suspension.--Clause (i) shall not apply during any
period in which the reserve ratio of the Deposit Insurance
Fund is less than the amount which is equal to 1.15 percent
of the aggregate estimated insured deposits.''.
(b) Assessment Recordkeeping Period Shortened.--Paragraph
(5) of section 7(b) of the Federal Deposit Insurance Act (12
U.S.C. 1817(b)) is amended to read as follows:
``(5) Depository institution required to maintain
assessment-related records.--Each insured depository
institution shall maintain all records that the Corporation
may require for verifying the correctness of any assessment
on the insured depository institution under this subsection
until the later of--
``(A) the end of the 3-year period beginning on the due
date of the assessment; or
``(B) in the case of a dispute between the insured
depository institution and the Corporation with respect to
such assessment, the date of a final determination of any
such dispute.''.
(c) Increase in Fees for Late Assessment Payments.--
Subsection (h) of section 18 of the Federal Deposit Insurance
Act (12 U.S.C. 1828(h)) is amended to read as follows:
``(h) Penalty for Failure to Timely Pay Assessments.--
``(1) In general.--Any insured depository institution which
fails or refuses to pay any assessment shall be subject to a
penalty in an amount not more than 1 percent of the amount of
the assessment due for each day that such violation
continues.
``(2) Exception in case of dispute.--Paragraph (1) shall
not apply if--
``(A) the failure to pay an assessment is due to a dispute
between the insured depository institution and the
Corporation over the amount of such assessment; and
``(B) the insured depository institution deposits security
satisfactory to the Corporation for payment upon final
determination of the issue.
``(3) Authority to modify or remit penalty.--The
Corporation, in the sole discretion of the Corporation, may
compromise, modify or remit any penalty which the Corporation
may assess or has already assessed under paragraph (1) upon a
finding that good cause prevented the timely payment of an
assessment.''.
(d) Assessments for Lifeline Accounts.--
(1) In general.--Section 232 of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (12 U.S.C.
1834) is amended by striking subsection (c).
(2) Clarification of rate applicable to deposits
attributable to lifeline accounts.--Section 7(b)(2)(H) of the
Federal Deposit Insurance Act (12 U.S.C. 1817(b)(2)(H)) is
amended by striking ``at a rate determined in accordance with
such Act'' and inserting ``at \1/2\ the assessment rate
otherwise applicable for such insured depository
institution''.
(3) Regulations.--Section 232(a)(1) of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (12 U.S.C.
1834(a)(1)) is amended by striking ``Board of Governors of
the Federal Reserve System, and the''.
(e) Technical and Conforming Amendments.--
(1) Paragraph (3) of section 7(a) of the Federal Deposit
Insurance Act (12 U.S.C. 1817(a)(3)) is amended by striking
the 3d sentence and inserting the following: ``Such reports
of condition shall be the basis for the certified statements
to be filed pursuant to subsection (c).''.
(2) Subparagraphs (B)(ii) and (C) of section 7(b)(1) of the
Federal Deposit Insurance Act (12 U.S.C. 1817(b)(1)) are each
amended by striking ``semiannual'' where such term appears in
each such subparagraph.
(3) Section 7(b)(2) of the Federal Deposit Insurance Act
(12 U.S.C. 1817(b)(2)) is amended--
(A) by striking subparagraphs (E), (F), and (G);
(B) in subparagraph (C), by striking ``semiannual''; and
(C) by redesignating subparagraph (H) (as amended by
subsection (e)(2) of this section) as subparagraph (E).
(4) Section 7(b) of the Federal Deposit Insurance Act (12
U.S.C. 1817(b)) is amended by striking paragraph (4) and
redesignating paragraphs (5) (as amended by subsection (b) of
this section), (6), and (7) as paragraphs (4), (5), and (6)
respectively.
(5) Section 7(c) of the Federal Deposit Insurance Act (12
U.S.C. 1817(c)) is amended--
(A) in paragraph (1)(A), by striking ``semiannual'';
(B) in paragraph (2)(A), by striking ``semiannual''; and
(C) in paragraph (3), by striking ``semiannual period'' and
inserting ``initial assessment period''.
(6) Section 7(g)(6) of the Federal Deposit Insurance Act
(12 U.S.C. 1817(g)(6)) (as amended by subsection (c) of this
section) is amended by striking ``(b)(5)'' and inserting
``(b)(4)''.
(7) Section 8(p) of the Federal Deposit Insurance Act (12
U.S.C. 1818(p)) is amended by striking ``semiannual''.
(8) Section 8(q) of the Federal Deposit Insurance Act (12
U.S.C. 1818(q)) is amended by striking ``semiannual period''
and inserting ``assessment period''.
[[Page H2790]]
(9) Section 13(c)(4)(G)(ii)(II) of the Federal Deposit
Insurance Act (12 U.S.C. 1823(c)(4)(G)(ii)(II)) is amended by
striking ``semiannual period'' and inserting ``assessment
period''.
(10) Section 232(a) of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (12 U.S.C. 1834(a)) is
amended--
(A) in the matter preceding subparagraph (A) of paragraph
(2), by striking ``the Board and'';
(B) in subparagraph (J) of paragraph (2), by striking ``the
Board'' and inserting ``the Corporation'';
(C) by striking subparagraph (A) of paragraph (3) and
inserting the following new subparagraph:
``(A) Corporation.--The term `Corporation' means the
Federal Deposit Insurance Corporation.''; and
(D) in subparagraph (C) of paragraph (3), by striking
``Board'' and inserting ``Corporation''.
(f) Effective Date.--Except as provided in subsection (c),
this section and the amendments made by this section shall
take effect on the date that the final regulations required
under section 9(a)(5) take effect.
SEC. 5. REPLACEMENT OF FIXED DESIGNATED RESERVE RATIO WITH
RESERVE RANGE.
(a) In General.--Section 7(b)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1817(b)(3)) is amended to read as
follows:
``(3) Designated reserve ratio.--
``(A) Establishment.--
``(i) In general.--The Board of Directors shall designate,
by regulation after notice and opportunity for comment, the
reserve ratio applicable with respect to the Deposit
Insurance Fund.
``(ii) Not less than annual redetermination.--A
determination under clause (i) shall be made by the Board of
Directors at least before the beginning of each calendar
year, for such calendar year, and at such other times as the
Board of Directors may determine to be appropriate.
``(B) Range.--The reserve ratio designated by the Board of
Directors for any year--
``(i) may not exceed 1.4 percent of estimated insured
deposits; and
``(ii) may not be less than 1.15 percent of estimated
insured deposits.
``(C) Factors.--In designating a reserve ratio for any
year, the Board of Directors shall--
``(i) take into account the risk of losses to the Deposit
Insurance Fund in such year and future years, including
historic experience and potential and estimated losses from
insured depository institutions;
``(ii) take into account economic conditions generally
affecting insured depository institutions so as to allow the
designated reserve ratio to increase during more favorable
economic conditions and to decrease during less favorable
economic conditions, notwithstanding the increased risks of
loss that may exist during such less favorable conditions, as
determined to be appropriate by the Board of Directors;
``(iii) seek to prevent sharp swings in the assessment
rates for insured depository institutions; and
``(iv) take into account such other factors as the Board of
Directors may determine to be appropriate, consistent with
the requirements of this subparagraph.
``(D) Publication of proposed change in ratio.--In
soliciting comment on any proposed change in the designated
reserve ratio in accordance with subparagraph (A), the Board
of Directors shall include in the published proposal a
thorough analysis of the data and projections on which the
proposal is based.''.
(b) Technical and Conforming Amendment.--Section 3(y) of
the Federal Deposit Insurance Act (12 U.S.C. 1813(y)) is
amended--
(1) by striking ``(y) The term'' and inserting ``(y)
Definitions Relating to Deposit Insurance Fund.--
``(1) Deposit insurance fund.--The term''; and
(2) by inserting after paragraph (1) (as so designated by
paragraph (1) of this subsection) the following new
paragraph:
``(2) Designated reserve ratio.--The term `designated
reserve ratio' means the reserve ratio designated by the
Board of Directors in accordance with section 7(b)(3).''.
(c) Effective Date.--This section and the amendments made
by this section shall take effect on the date that the final
regulations required under section 9(a)(1) take effect.
SEC. 6. REQUIREMENTS APPLICABLE TO THE RISK-BASED ASSESSMENT
SYSTEM.
Section 7(b)(1) of the Federal Deposit Insurance Act (12
U.S.C. 1817(b)(1)) is amended by adding at the end the
following new subparagraphs:
``(E) Information concerning risk of loss and economic
conditions.--
``(i) Sources of information.--For purposes of determining
risk of losses at insured depository institutions and
economic conditions generally affecting depository
institutions, the Corporation shall collect information, as
appropriate, from all sources the Board of Directors
considers appropriate, such as reports of condition,
inspection reports, and other information from all Federal
banking agencies, any information available from State bank
supervisors, State insurance and securities regulators, the
Securities and Exchange Commission (including information
described in section 35), the Secretary of the Treasury, the
Commodity Futures Trading Commission, the Farm Credit
Administration, the Federal Trade Commission, any Federal
reserve bank or Federal home loan bank, and other regulators
of financial institutions, and any information available from
credit rating entities, and other private economic or
business analysts.
``(ii) Consultation with federal banking agencies.--
``(I) In general.--Except as provided in subclause (II), in
assessing the risk of loss to the Deposit Insurance Fund with
respect to any insured depository institution, the
Corporation shall consult with the appropriate Federal
banking agency of such institution.
``(II) Treatment on aggregate basis.--In the case of
insured depository institutions that are well capitalized (as
defined in section 38) and, in the most recent examination,
were found to be well managed, the consultation under
subclause (I) concerning the assessment of the risk of loss
posed by such institutions may be made on an aggregate basis.
``(iii) Rule of construction.--No provision of this
paragraph shall be construed as providing any new authority
for the Corporation to require submission of information by
insured depository institutions to the Corporation.
``(F) Modifications to the risk-based assessment system
allowed only after notice and comment.--In revising or
modifying the risk-based assessment system at any time after
the date of the enactment of the Federal Deposit Insurance
Reform Act of 2002, the Board of Directors may implement such
revisions or modification in final form only after notice and
opportunity for comment.''.
SEC. 7. REFUNDS, DIVIDENDS, AND CREDITS FROM DEPOSIT
INSURANCE FUND.
(a) In General.--Subsection (e) of section 7 of the Federal
Deposit Insurance Act (12 U.S.C. 1817(e)) is amended to read
as follows:
``(e) Refunds, Dividends, and Credits.--
``(1) Refunds of overpayments.--In the case of any payment
of an assessment by an insured depository institution in
excess of the amount due to the Corporation, the Corporation
may--
``(A) refund the amount of the excess payment to the
insured depository institution; or
``(B) credit such excess amount toward the payment of
subsequent assessments until such credit is exhausted.
``(2) Dividends from excess amounts in deposit insurance
fund.--
``(A) Reserve ratio equal to or in excess of 1.4 percent of
estimated insured deposits.--Whenever the reserve ratio of
the Deposit Insurance Fund equals or exceeds 1.4 percent of
estimated insured deposits, the Corporation shall declare the
amount in the Fund in excess of the amount required to
maintain the reserve ratio at the designated reserve ratio in
effect at such time, as dividends to be paid to insured
depository institutions.
``(B) Reserve ratio equal to or in excess of 1.35 percent
of estimated insured deposits and less than 1.4 percent.--
Whenever the reserve ratio of the Deposit Insurance Fund
equals or exceeds 1.35 percent of estimated insured deposits
and is less than 1.4 percent of such deposits, the
Corporation shall declare the amount in the Fund that is
equal to 50 percent of the amount in excess of the amount
required to maintain the reserve ratio at 1.35 percent of the
estimated insured deposits as dividends to be paid to insured
depository institutions.
``(C) Basis for distribution of dividends.--
``(i) In general.--Solely for the purposes of dividend
distribution under this paragraph and credit distribution
under paragraph (3)(B), the Corporation shall determine each
insured depository institution's relative contribution to the
Deposit Insurance Fund (or any predecessor deposit insurance
fund) for calculating such institution's share of any
dividend or credit declared under this paragraph or paragraph
(3)(B), taking into account the factors described in clause
(ii).
``(ii) Factors for distribution.--In implementing this
paragraph and paragraph (3)(B) in accordance with
regulations, the Corporation shall take into account the
following factors:
``(I) The ratio of the assessment base of an insured
depository institution (including any predecessor) on
December 31, 1996, to the assessment base of all eligible
insured depository institutions on that date.
``(II) The total amount of assessments paid on or after
January 1, 1997, by an insured depository institution
(including any predecessor) to the Deposit Insurance Fund
(and any predecessor deposit insurance fund).
``(III) That portion of assessments paid by an insured
depository institution (including any predecessor) that
reflects higher levels of risk assumed by such institution.
``(IV) Such other factors as the Corporation may determine
to be appropriate.
``(D) Notice and opportunity for comment.--The calculation,
declaration, and payment of dividends under this paragraph
shall be made at such times, in such manner, and on such
conditions as the Corporation shall prescribe by regulation,
after notice and opportunity for comment.
``(3) Credit pool.--
``(A) One-time credit based on total assessment base at
year-end 1996.--
[[Page H2791]]
``(i) In general.--Before the end of the 270-day period
beginning on the date of the enactment of the Federal Deposit
Insurance Reform Act of 2002, the Board of Directors shall,
by regulation, provide for a credit to each eligible insured
depository institution, based on the assessment base of the
institution (including any predecessor institution) on
December 31, 1996, as compared to the combined aggregate
assessment base of all eligible insured depository
institutions, taking into account such factors as the
Board of Directors may determine to be appropriate.
``(ii) Credit limit.--The aggregate amount of credits
available under clause (i) to all eligible insured depository
institutions shall equal the amount that the Corporation
could collect if the Corporation imposed an assessment of 12
basis points on the combined assessment base of the Bank
Insurance Fund and the Savings Association Insurance Fund as
of December 31, 2001.
``(iii) Eligible insured depository institution defined.--
For purposes of this paragraph, the term `eligible insured
depository institution' means any insured depository
institution that--
``(I) was in existence on December 31, 1996, and paid a
deposit insurance assessment prior to that date; or
``(II) is a successor to any insured depository institution
described in subclause (II).
``(iv) Application of credits.--
``(I) In general.--The amount of a credit to any eligible
insured depository institution under this paragraph may be
applied by the Corporation to those portions of the
assessments imposed on such institution under subsection (b)
that become due for assessment periods beginning after the
effective date of regulations prescribed under clause (i).
``(II) Regulations.--The regulations prescribed under
clause (i) shall establish the qualifications and procedures
governing the application of assessment credits pursuant to
subclause (I).
``(v) Criteria for determination.--In determining whether
to provide assessment credits under this paragraph and the
amounts of any such credits, the Board of Directors shall
take into account the factors for designating the reserve
ratio under subsection (b)(3) and the factors for setting
assessments under subsection (b)(2)(B).
``(vi) Limitation on amount of credit for certain
depository institutions.--In the case of an insured
depository institution that exhibits financial, operational,
or compliance weaknesses ranging from moderately severe to
unsatisfactory, or is not adequately capitalized (as defined
in section 38) at the beginning of an assessment period, the
amount of any credit allowed under this paragraph against the
assessment on that depository institution for such period may
not exceed the amount calculated by applying to that
depository institution the average assessment rate on all
insured depository institutions for such assessment period.
``(vii) Predecessor defined.--For purposes of this
paragraph, the term `predecessor', when used with respect to
any insured depository institution, includes any other
insured depository institution acquired by or merged with
such insured depository institution.
``(B) On-going credit pool.--
``(i) In general.--In addition to the credit provided
pursuant to subparagraph (A) and subject to the limitation
contained in clause (vi) of such subparagraph, the
Corporation shall, by regulation, establish an on-going
system of credits to be applied against future assessments
under subsection (b)(1) on the same basis as the dividends
provided under paragraph (2)(C).
``(ii) Limitation on credits under certain circumstances.--
No credits may be allowed by the Corporation under this
subparagraph during any period in which--
``(I) the reserve ratio of the Deposit Insurance Fund is
less than the designated reserve ratio of such Fund; or
``(II) the designated reserve ratio of the Fund is less
than 1.25 percent of the amount of estimated insured
deposits.
``(4) Administrative review.--
``(A) In general.--The regulations prescribed under
paragraph (2)(D) and subparagraphs (A) and (B) of paragraph
(3) shall include provisions allowing an insured depository
institution a reasonable opportunity to challenge
administratively the amount of the credit or dividend
determined under paragraph (2) or (3) for such institution.
``(B) Administrative review.--Any review under subparagraph
(A) of any determination of the Corporation under paragraph
(2) or (3) shall be final and not subject to judicial
review.''.
(b) Definition of Reserve Ratio.--Section 3(y) of the
Federal Deposit Insurance Act (12 U.S.C. 1813(y)) (as amended
by section 5(b) of this Act) is amended by adding at the end
the following new paragraph:
``(3) Reserve ratio.--The term `reserve ratio', when used
with regard to the Deposit Insurance Fund other than in
connection with a reference to the designated reserve ratio,
means the ratio of the net worth of the Deposit Insurance
Fund to the value of the aggregate estimated insured
deposits.''.
SEC. 8. DEPOSIT INSURANCE FUND RESTORATION PLANS.
Section 7(b)(3) of the Federal Deposit Insurance Act (12
U.S.C. 1917(b)(3)) (as amended by section 5(a) of this Act)
is amended by adding at the end the following new
subparagraph:
``(E) DIF restoration plans.--
``(i) In general.--Whenever--
``(I) the Corporation projects that the reserve ratio of
the Deposit Insurance Fund will fall below the designated
reserve ratio within 6 months of such determination; or
``(II) the reserve ratio of the Deposit Insurance Fund
actually falls below the designated reserve ratio without any
determination under subclause (I) having been made,
the Corporation shall establish and implement a Deposit
Insurance Fund restoration plan within 30 days that meets the
requirements of clause (ii) or (iii), as the case may be, and
such other conditions as the Corporation determines to be
appropriate.
``(ii) Requirements of plan if reserve ratio does not fall
below 1.0 percent.--If the reserve ratio of the Deposit
Insurance Fund is not projected to or has not fallen below an
amount equal to 1.0 percent of the aggregate estimated
insured deposits, a Deposit Insurance Fund restoration plan
meets the requirements of this clause if the plan provides
that the reserve ratio of the Fund will meet or exceed the
designated reserve ratio that was in effect before the
occurrence of the event described in subclause (I) or (II) of
clause (i) before the end of the 3-year period beginning upon
implementation of the plan.
``(iii) Requirements of plan if reserve ratio falls below
1.0 percent.--If the reserve ratio of the Deposit Insurance
Fund has fallen below an amount equal to 1.0 percent of the
aggregate estimated insured deposits, a Deposit Insurance
Fund restoration plan meets the requirements of this clause
if the plan provides that the reserve ratio of the Fund--
``(I) will meet or exceed an amount equal to 1.0 percent of
the aggregate estimated insured deposits before the end of
the 2-year period beginning upon implementation of the plan;
and
``(II) will meet or exceed the designated reserve ratio
that was in effect before the occurrence of the event
described in subclause (I) or (II) of clause (i) before the
end of the 3-year period beginning on the date the reserve
ratio first meets or exceeds an amount equal to 1.0 percent
of the aggregate estimated insured deposits after the
implementation of the plan.
``(iv) Transparency.--Not more than 90 days after the
Corporation establishes and implements a restoration plan
under clause (i), the Corporation shall publish in the
Federal Register a detailed analysis of the factors
considered and the basis for the actions taken with regard to
the plan.''.
SEC. 9. REGULATIONS REQUIRED.
(a) In General.--Not later than 270 days after the date of
the enactment of this Act, the Board of Directors of the
Federal Deposit Insurance Corporation shall prescribe final
regulations, after notice and opportunity for comment--
(1) designating the reserve ratio for the Deposit Insurance
Fund in accordance with section 7(b)(3) of the Federal
Deposit Insurance Act (as amended by section 5 of this Act);
(2) implementing increases in deposit insurance coverage in
accordance with the amendments made by section 3 of this Act;
(3) implementing the dividend requirement under section
7(e)(2) of the Federal Deposit Insurance Act (as amended by
section 7 of this Act).
(4) implementing the 1-time assessment credit to certain
insured depository institutions in accordance with section
7(e)(3) of the Federal Deposit Insurance Act, as amended by
section 7 of this Act, including the qualifications and
procedures under which the Corporation would apply assessment
credits; and
(5) providing for assessments under section 7(b) of the
Federal Deposit Insurance Act, as amended by this Act.
(b) Rule of Construction.--No provision of this Act or any
amendment made by this Act shall be construed as affecting
the authority of the Corporation to set or collect deposit
insurance assessments before the effective date of the final
regulation prescribed under subsection (a).
SEC. 10. STUDIES OF FDIC STRUCTURE AND EXPENSES AND CERTAIN
ACTIVITIES AND FURTHER POSSIBLE CHANGES TO
DEPOSIT INSURANCE SYSTEM.
(a) Study by Comptroller General.--
(1) Study required.--The Comptroller General shall conduct
a study of the following issues:
(A) The efficiency and effectiveness of the administration
of the prompt corrective action program under section 38 of
the Federal Deposit Insurance Act by the Federal banking
agencies (as defined in section 3 of such Act), including the
degree of effectiveness of such agencies in identifying
troubled depository institutions and taking effective action
with respect to such institutions, and the degree of accuracy
of the risk assessments made by the Corporation.
(B) The appropriateness of the organizational structure of
the Federal Deposit Insurance Corporation for the mission of
the Corporation taking into account--
(i) the current size and complexity of the business of
insured depository institutions (as such term is defined in
section 3 of the Federal Deposit Insurance Act);
(ii) the extent to which the organizational structure
contributes to or reduces operational inefficiencies that
increase operational costs; and
(iii) the effectiveness of internal controls.
(2) Report to the congress.--The Comptroller General shall
submit a report to the Congress before the end of the 1-year
period beginning on the date of the enactment of
[[Page H2792]]
this Act containing the findings and conclusions of the
Comptroller General with respect to the study required under
paragraph (1) together with such recommendations for
legislative or administrative action as the Comptroller
General may determine to be appropriate.
(b) Internal Study by the FDIC.--
(1) Study required.--Concurrently with the study required
to be conducted by the Comptroller General under subsection
(a), the Federal Deposit Insurance Corporation shall conduct
an internal study of the same conditions and factors included
in the study under subsection (a).
(2) Report to the congress.--The Federal Deposit Insurance
Corporation shall submit a report to the Congress before the
end of the 1-year period beginning on the date of the
enactment of this Act containing the findings and conclusions
of the Corporation with respect to the study required under
paragraph (1) together with such recommendations for
legislative or administrative action as the Board of
Directors of the Corporation may determine to be appropriate.
(c) Study of Further Possible Changes to Deposit Insurance
System.--
(1) Study required.--The Board of Directors of the Federal
Deposit Insurance Corporation and the National Credit Union
Administration Board shall each conduct a study of the
following:
(A) The feasibility of establishing a voluntary deposit
insurance system for deposits in excess of the maximum amount
of deposit insurance for any depositor and the potential
benefits and the potential adverse consequences that may
result from the establishment of any such system.
(B) The feasibility of privatizing all deposit insurance at
insured depository institutions and insured credit unions.
(2) Report.--Before the end of the 1-year period beginning
on the date of the enactment of this Act, the Board of
Directors of the Federal Deposit Insurance Corporation and
the National Credit Union Administration Board shall each
submit a report to the Congress on the study required under
paragraph (1) containing the findings and conclusions of the
reporting agency together with such recommendations for
legislative or administrative changes as the agency may
determine to be appropriate.
(d) Study Regarding Appropriate Deposit Base in Designating
Reserve Ratio.--
(1) Study required.--The Federal Deposit Insurance
Corporation shall conduct a study of the feasibility of using
actual domestic deposits rather than estimated insured
deposits in calculating the reserve ratio of the Deposit
Insurance Fund and designating a reserve ratio for such Fund.
(2) Report.--The Federal Deposit Insurance Corporation
shall submit a report to the Congress before the end of the
1-year period beginning on the date of the enactment of this
Act containing the findings and conclusions of the
Corporation with respect to the study required under
paragraph (1) together with such recommendations for
legislative or administrative action as the Board of
Directors of the Corporation may determine to be appropriate.
(e) Study of Reserve Methodology and Accounting for Loss.--
(1) Study required.--The Federal Deposit Insurance
Corporation, in consultation with the Comptroller General,
shall conduct a study of the reserve methodology and loss
accounting used by the Corporation during the period
beginning on January 1, 1992, and ending December 31, 2002,
with respect to insured depository institutions in a troubled
condition (as defined in the regulations prescribed pursuant
to section 32(f) of the Federal Deposit Insurance Act).
(2) Factors to be included.--In conducting the study
pursuant to paragraph (1), the Federal Deposit Insurance
Corporation shall--
(A) consider the overall effectiveness and accuracy of the
methodology used by the Corporation for establishing and
maintaining reserves and estimating and accounting for losses
at insured depository institutions, during the period
described in such paragraph;
(B) consider the appropriateness and reliability of
information and criteria used by the Corporation in
determining--
(i) whether an insured depository institution was in a
troubled condition; and
(ii) the amount of any loss anticipated at such
institution;
(C) analyze the actual historical loss experience over the
period described in paragraph (1) and the causes of the
exceptionally high rate of losses experienced by the
Corporation in the final 3 years of that period; and
(D) rate the Corporation's efforts of the Corporation to
reduce losses in such 3-year period to minimally acceptable
levels and to historical levels.
(3) Report required.--The Board of Directors of the Federal
Deposit Insurance Corporation shall submit a report to the
Congress before June 30, 2003, containing the findings and
conclusions of the Corporation, in consultation with the
Comptroller General, with respect to the study required under
paragraph (1), together with such recommendations for
legislative or administrative action as the Board of
Directors may determine to be appropriate.
SEC. 11. TECHNICAL AND CONFORMING AMENDMENTS TO THE FEDERAL
DEPOSIT INSURANCE ACT RELATING TO THE MERGER OF
THE BIF AND SAIF.
(a) In General.--The Federal Deposit Insurance Act (12
U.S.C. 1811 et seq.) is amended--
(1) in section 3 (12 U.S.C. 1813)--
(A) by striking subparagraph (B) of subsection (a)(1) and
inserting the following new subparagraph:
``(B) includes any former savings association.''; and
(B) by striking paragraph (1) of subsection (y) (as so
designated by section 5(b) of this Act) and inserting the
following new paragraph:
``(1) Deposit insurance fund.--The term `Deposit Insurance
Fund' means the Deposit Insurance Fund established under
section 11(a)(4).'';
(2) in section 5(b)(5) (12 U.S.C. 1815(b)(5)), by striking
``the Bank Insurance Fund or the Savings Association
Insurance Fund,'' and inserting ``the Deposit Insurance
Fund,'';
(3) in section 5(c)(4), by striking ``deposit insurance
fund'' and inserting ``Deposit Insurance Fund'';
(4) in section 5(d) (12 U.S.C. 1815(d)), by striking
paragraphs (2) and (3);
(5) in section 5(d)(1) (12 U.S.C. 1815(d)(1))--
(A) in subparagraph (A), by striking ``reserve ratios in
the Bank Insurance Fund and the Savings Association Insurance
Fund as required by section 7'' and inserting ``the reserve
ratio of the Deposit Insurance Fund'';
(B) by striking subparagraph (B) and inserting the
following:
``(2) Fee credited to the deposit insurance fund.--The fee
paid by the depository institution under paragraph (1) shall
be credited to the Deposit Insurance Fund.'';
(C) by striking ``(1) Uninsured institutions.--''; and
(D) by redesignating subparagraphs (A) and (C) as
paragraphs (1) and (3), respectively, and moving the left
margins 2 ems to the left;
(6) in section 5(e) (12 U.S.C. 1815(e))--
(A) in paragraph (5)(A), by striking ``Bank Insurance Fund
or the Savings Association Insurance Fund'' and inserting
``Deposit Insurance Fund'';
(B) by striking paragraph (6); and
(C) by redesignating paragraphs (7), (8), and (9) as
paragraphs (6), (7), and (8), respectively;
(7) in section 6(5) (12 U.S.C. 1816(5)), by striking ``Bank
Insurance Fund or the Savings Association Insurance Fund''
and inserting ``Deposit Insurance Fund'';
(8) in section 7(b) (12 U.S.C. 1817(b))--
(A) in paragraph (1)(C), by striking ``deposit insurance
fund'' each place that term appears and inserting ``Deposit
Insurance Fund'';
(B) in paragraph (1)(D), by striking ``each deposit
insurance fund'' and inserting ``the Deposit Insurance
Fund''; and
(C) in paragraph (5) (as so redesignated by section 4(e)(4)
of this Act)--
(i) by striking ``any such assessment'' and inserting ``any
such assessment is necessary'';
(ii) by striking subparagraph (B);
(iii) in subparagraph (A)--
(I) by striking ``(A) is necessary--'';
(II) by striking ``Bank Insurance Fund members'' and
inserting ``insured depository institutions''; and
(III) by redesignating clauses (i), (ii), and (iii) as
subparagraphs (A), (B), and (C), respectively, and moving the
margins 2 ems to the left; and
(iv) in subparagraph (C) (as so redesignated)--
(I) by inserting ``that'' before ``the Corporation''; and
(II) by striking ``; and'' and inserting a period;
(9) in section 7(j)(7)(F) (12 U.S.C. 1817(j)(7)(F)), by
striking ``Bank Insurance Fund or the Savings Association
Insurance Fund'' and inserting ``Deposit Insurance Fund'';
(10) in section 8(t)(2)(C) (12 U.S.C. 1818(t)(2)(C)), by
striking ``deposit insurance fund'' and inserting ``Deposit
Insurance Fund'';
(11) in section 11 (12 U.S.C. 1821)--
(A) by striking ``deposit insurance fund'' each place that
term appears and inserting ``Deposit Insurance Fund'';
(B) by striking paragraph (4) of subsection (a) and
inserting the following new paragraph:
``(4) Deposit insurance fund.--
``(A) Establishment.--There is established the Deposit
Insurance Fund, which the Corporation shall--
``(i) maintain and administer;
``(ii) use to carry out its insurance purposes, in the
manner provided by this subsection; and
``(iii) invest in accordance with section 13(a).
``(B) Uses.--The Deposit Insurance Fund shall be available
to the Corporation for use with respect to insured depository
institutions the deposits of which are insured by the Deposit
Insurance Fund.
``(C) Limitation on use.--Notwithstanding any provision of
law other than section 13(c)(4)(G), the Deposit Insurance
Fund shall not be used in any manner to benefit any
shareholder or affiliate (other than an insured depository
institution that receives assistance in accordance with the
provisions of this Act) of--
``(i) any insured depository institution for which the
Corporation has been appointed conservator or receiver, in
connection with any type of resolution by the Corporation;
``(ii) any other insured depository institution in default
or in danger of default, in connection with any type of
resolution by the Corporation; or
[[Page H2793]]
``(iii) any insured depository institution, in connection
with the provision of assistance under this section or
section 13 with respect to such institution, except that this
clause shall not prohibit any assistance to any insured
depository institution that is not in default, or that is not
in danger of default, that is acquiring (as defined in
section 13(f)(8)(B)) another insured depository institution.
``(D) Deposits.--All amounts assessed against insured
depository institutions by the Corporation shall be deposited
into the Deposit Insurance Fund.'';
(C) by striking paragraphs (5), (6), and (7) of subsection
(a); and
(D) by redesignating paragraph (8) of subsection (a) as
paragraph (5);
(12) in section 11(f)(1) (12 U.S.C. 1821(f)(1)), by
striking ``, except that--'' and all that follows through the
end of the paragraph and inserting a period;
(13) in section 11(i)(3) (12 U.S.C. 1821(i)(3))--
(A) by striking subparagraph (B);
(B) by redesignating subparagraph (C) as subparagraph (B);
and
(C) in subparagraph (B) (as so redesignated), by striking
``subparagraphs (A) and (B)'' and inserting ``subparagraph
(A)'';
(14) in section 11(p)(2)(B) (12 U.S.C. 1821(p)(2)(B)), by
striking ``institution, any'' and inserting ``institution,
the'';
(15) in section 11A(a) (12 U.S.C. 1821a(a))--
(A) in paragraph (2), by striking ``liabilities.--'' and
all that follows through ``Except'' and inserting
``liabilities.--Except'';
(B) by striking paragraph (2)(B); and
(C) in paragraph (3), by striking ``the Bank Insurance
Fund, the Savings Association Insurance Fund,'' and inserting
``the Deposit Insurance Fund'';
(16) in section 11A(b) (12 U.S.C. 1821a(b)), by striking
paragraph (4);
(17) in section 11A(f) (12 U.S.C. 1821a(f)), by striking
``Savings Association Insurance Fund'' and inserting
``Deposit Insurance Fund'';
(18) in section 12(f)(4)(E)(iv) (12 U.S.C.
1822(f)(4)(E)(iv)), by striking ``Federal deposit insurance
funds'' and inserting ``the Deposit Insurance Fund (or any
predecessor deposit insurance fund)'';
(19) in section 13 (12 U.S.C. 1823)--
(A) by striking ``deposit insurance fund'' each place that
term appears and inserting ``Deposit Insurance Fund'';
(B) in subsection (a)(1), by striking ``Bank Insurance
Fund, the Savings Association Insurance Fund,'' and inserting
``Deposit Insurance Fund'';
(C) in subsection (c)(4)(E)--
(i) in the subparagraph heading, by striking ``funds'' and
inserting ``fund''; and
(ii) in clause (i), by striking ``any insurance fund'' and
inserting ``the Deposit Insurance Fund'';
(D) in subsection (c)(4)(G)(ii)--
(i) by striking ``appropriate insurance fund'' and
inserting ``Deposit Insurance Fund'';
(ii) by striking ``the members of the insurance fund (of
which such institution is a member)'' and inserting ``insured
depository institutions'';
(iii) by striking ``each member's'' and inserting ``each
insured depository institution's''; and
(iv) by striking ``the member's'' each place that term
appears and inserting ``the institution's'';
(E) in subsection (c), by striking paragraph (11);
(F) in subsection (h), by striking ``Bank Insurance Fund''
and inserting ``Deposit Insurance Fund'';
(G) in subsection (k)(4)(B)(i), by striking ``Savings
Association Insurance Fund member'' and inserting ``savings
association''; and
(H) in subsection (k)(5)(A), by striking ``Savings
Association Insurance Fund members'' and inserting ``savings
associations'';
(20) in section 14(a) (12 U.S.C. 1824(a)), in the 5th
sentence--
(A) by striking ``Bank Insurance Fund or the Savings
Association Insurance Fund'' and inserting ``Deposit
Insurance Fund''; and
(B) by striking ``each such fund'' and inserting ``the
Deposit Insurance Fund'';
(21) in section 14(b) (12 U.S.C. 1824(b)), by striking
``Bank Insurance Fund or Savings Association Insurance Fund''
and inserting ``Deposit Insurance Fund'';
(22) in section 14(c) (12 U.S.C. 1824(c)), by striking
paragraph (3);
(23) in section 14(d) (12 U.S.C. 1824(d))--
(A) by striking ``Bank Insurance Fund member'' each place
that term appears and inserting ``insured depository
institution'';
(B) by striking ``Bank Insurance Fund members'' each place
that term appears and inserting ``insured depository
institutions'';
(C) by striking ``Bank Insurance Fund'' each place that
term appears (other than in connection with a reference to a
term amended by subparagraph (A) or (B) of this paragraph)
and inserting ``Deposit Insurance Fund'';
(D) by striking the subsection heading and inserting the
following:
``(d) Borrowing for the Deposit Insurance Fund From Insured
Depository Institutions.--'';
(E) in paragraph (3), in the paragraph heading, by striking
``bif'' and inserting ``the deposit insurance fund''; and
(F) in paragraph (5), in the paragraph heading, by striking
``bif members'' and inserting ``insured depository
institutions'';
(24) in section 14 (12 U.S.C. 1824), by adding at the end
the following new subsection:
``(e) Borrowing for the Deposit Insurance Fund From Federal
Home Loan Banks.--
``(1) In general.--The Corporation may borrow from the
Federal home loan banks, with the concurrence of the Federal
Housing Finance Board, such funds as the Corporation
considers necessary for the use of the Deposit Insurance
Fund.
``(2) Terms and conditions.--Any loan from any Federal home
loan bank under paragraph (1) to the Deposit Insurance Fund
shall--
``(A) bear a rate of interest of not less than the current
marginal cost of funds to that bank, taking into account the
maturities involved;
``(B) be adequately secured, as determined by the Federal
Housing Finance Board;
``(C) be a direct liability of the Deposit Insurance Fund;
and
``(D) be subject to the limitations of section 15(c).'';
(25) in section 15(c)(5) (12 U.S.C. 1825(c)(5))--
(A) by striking ``the Bank Insurance Fund or Savings
Association Insurance Fund, respectively'' each place that
term appears and inserting ``the Deposit Insurance Fund'';
and
(B) in subparagraph (B), by striking ``the Bank Insurance
Fund or the Savings Association Insurance Fund,
respectively'' and inserting ``the Deposit Insurance Fund'';
(26) in section 17(a) (12 U.S.C. 1827(a))--
(A) in the subsection heading, by striking ``BIF, SAIF,''
and inserting ``the Deposit Insurance Fund''; and
(B) in paragraph (1)--
(i) by striking ``the Bank Insurance Fund, the Savings
Association Insurance Fund,'' each place that term appears
and inserting ``the Deposit Insurance Fund''; and
(ii) in subparagraph (D), by striking ``each insurance
fund'' and inserting ``the Deposit Insurance Fund'';
(27) in section 17(d) (12 U.S.C. 1827(d)), by striking ``,
the Bank Insurance Fund, the Savings Association Insurance
Fund,'' each place that term appears and inserting ``the
Deposit Insurance Fund'';
(28) in section 18(m)(3) (12 U.S.C. 1828(m)(3))--
(A) by striking ``Savings Association Insurance Fund'' in
the 1st sentence of subparagraph (A) and inserting ``Deposit
Insurance Fund'';
(B) by striking ``Savings Association Insurance Fund
member'' in the last sentence of subparagraph (A) and
inserting ``savings association''; and
(C) by striking ``Savings Association Insurance Fund or the
Bank Insurance Fund'' in subparagraph (C) and inserting
``Deposit Insurance Fund'';
(29) in section 18(o) (12 U.S.C. 1828(o)), by striking
``deposit insurance funds'' and ``deposit insurance fund''
each place those terms appear and inserting ``Deposit
Insurance Fund'';
(30) in section 18(p) (12 U.S.C. 1828(p)), by striking
``deposit insurance funds'' and inserting ``Deposit Insurance
Fund'';
(31) in section 24 (12 U.S.C. 1831a)--
(A) in subsections (a)(1) and (d)(1)(A), by striking
``appropriate deposit insurance fund'' each place that term
appears and inserting ``Deposit Insurance Fund'';
(B) in subsection (e)(2)(A), by striking ``risk to'' and
all that follows through the period and inserting ``risk to
the Deposit Insurance Fund.''; and
(C) in subsections (e)(2)(B)(ii) and (f)(6)(B), by striking
``the insurance fund of which such bank is a member'' each
place that term appears and inserting ``the Deposit Insurance
Fund'';
(32) in section 28 (12 U.S.C. 1831e), by striking
``affected deposit insurance fund'' each place that term
appears and inserting ``Deposit Insurance Fund'';
(33) by striking section 31 (12 U.S.C. 1831h);
(34) in section 36(i)(3) (12 U.S.C. 1831m(i)(3)), by
striking ``affected deposit insurance fund'' and inserting
``Deposit Insurance Fund'';
(35) in section 37(a)(1)(C) (12 U.S.C. 1831n(a)(1)(C)), by
striking ``insurance funds'' and inserting ``Deposit
Insurance Fund'';
(36) in section 38 (12 U.S.C. 1831o), by striking ``the
deposit insurance fund'' each place that term appears and
inserting ``the Deposit Insurance Fund'';
(37) in section 38(a) (12 U.S.C. 1831o(a)), in the
subsection heading, by striking ``Funds'' and inserting
``Fund'';
(38) in section 38(k) (12 U.S.C. 1831o(k))--
(A) in paragraph (1), by striking ``a deposit insurance
fund'' and inserting ``the Deposit Insurance Fund'';
(B) in paragraph (2), by striking ``A deposit insurance
fund'' and inserting ``The Deposit Insurance Fund''; and
(C) in paragraphs (2)(A) and (3)(B), by striking ``the
deposit insurance fund's outlays'' each place that term
appears and inserting ``the outlays of the Deposit Insurance
Fund''; and
(39) in section 38(o) (12 U.S.C. 1831o(o))--
(A) by striking ``Associations.--'' and all that follows
through ``Subsections (e)(2)'' and inserting
``Associations.--Subsections (e)(2)'';
(B) by redesignating subparagraphs (A), (B), and (C) as
paragraphs (1), (2), and (3), respectively, and moving the
margins 2 ems to the left; and
(C) in paragraph (1) (as so redesignated), by redesignating
clauses (i) and (ii) as subparagraphs (A) and (B),
respectively, and moving the margins 2 ems to the left.
(b) Effective Date.--This section and the amendments made
by this section shall take effect on the first day of the
first calendar
[[Page H2794]]
quarter that begins after the end of the 90-day period
beginning on the date of the enactment of this Act.
SEC. 12. OTHER TECHNICAL AND CONFORMING AMENDMENTS RELATING
TO THE MERGER OF THE BIF AND SAIF.
(a) Section 5136 of the Revised Statutes.--The paragraph
designated the ``Eleventh'' of section 5136 of the Revised
Statutes of the United States (12 U.S.C. 24) is amended in
the 5th sentence, by striking ``affected deposit insurance
fund'' and inserting ``Deposit Insurance Fund''.
(b) Investments Promoting Public Welfare; Limitations on
Aggregate Investments.--The 23d undesignated paragraph of
section 9 of the Federal Reserve Act (12 U.S.C. 338a) is
amended in the 4th sentence, by striking ``affected deposit
insurance fund'' and inserting ``Deposit Insurance Fund''.
(c) Advances to Critically Undercapitalized Depository
Institutions.--Section 10B(b)(3)(A)(ii) of the Federal
Reserve Act (12 U.S.C. 347b(b)(3)(A)(ii)) is amended by
striking ``any deposit insurance fund in'' and inserting
``the Deposit Insurance Fund of''.
(d) Amendments to the Balanced Budget and Emergency Deficit
Control Act of 1985.--Section 255(g)(1)(A) of the Balanced
Budget and Emergency Deficit Control Act of 1985 (2 U.S.C.
905(g)(1)(A)) is amended--
(1) by striking ``Bank Insurance Fund'' and inserting
``Deposit Insurance Fund''; and
(2) by striking ``Federal Deposit Insurance Corporation,
Savings Association Insurance Fund (51-4066-0-3-373);''.
(e) Amendments to the Federal Home Loan Bank Act.--The
Federal Home Loan Bank Act (12 U.S.C. 1421 et seq.) is
amended--
(1) in section 11(k) (12 U.S.C. 1431(k))--
(A) in the subsection heading, by striking ``SAIF'' and
inserting ``the Deposit Insurance Fund''; and
(B) by striking ``Savings Association Insurance Fund'' each
place such term appears and inserting ``Deposit Insurance
Fund'';
(2) in section 21 (12 U.S.C. 1441)--
(A) in subsection (f)(2), by striking ``, except that'' and
all that follows through the end of the paragraph and
inserting a period; and
(B) in subsection (k), by striking paragraph (4);
(3) in section 21A(b)(4)(B) (12 U.S.C. 1441a(b)(4)(B)), by
striking ``affected deposit insurance fund'' and inserting
``Deposit Insurance Fund'';
(4) in section 21A(b)(6)(B) (12 U.S.C. 1441a(b)(6)(B))--
(A) in the subparagraph heading, by striking ``SAIF-insured
banks'' and inserting ``Charter conversions''; and
(B) by striking ``Savings Association Insurance Fund
member'' and inserting ``savings association'';
(5) in section 21A(b)(10)(A)(iv)(II) (12 U.S.C.
1441a(b)(10)(A)(iv)(II)), by striking ``Savings Association
Insurance Fund'' and inserting ``Deposit Insurance Fund'';
(6) in section 21A(n)(6)(E)(iv) (12 U.S.C.
1441(n)(6)(E)(iv)), by striking ``Federal deposit insurance
funds'' and inserting ``the Deposit Insurance Fund'';
(7) in section 21B(e) (12 U.S.C. 1441b(e))--
(A) in paragraph (5), by inserting ``as of the date of
funding'' after ``Savings Association Insurance Fund
members'' each place that term appears; and
(B) by striking paragraphs (7) and (8); and
(8) in section 21B(k) (12 U.S.C. 1441b(k))--
(A) by inserting before the colon ``, the following
definitions shall apply'';
(B) by striking paragraph (8); and
(C) by redesignating paragraphs (9) and (10) as paragraphs
(8) and (9), respectively.
(f) Amendments to the Home Owners' Loan Act.--The Home
Owners' Loan Act (12 U.S.C. 1461 et seq.) is amended--
(1) in section 5 (12 U.S.C. 1464)--
(A) in subsection (c)(5)(A), by striking ``that is a member
of the Bank Insurance Fund'';
(B) in subsection (c)(6), by striking ``As used in this
subsection--'' and inserting ``For purposes of this
subsection, the following definitions shall apply:'';
(C) in subsection (o)(1), by striking ``that is a Bank
Insurance Fund member'';
(D) in subsection (o)(2)(A), by striking ``a Bank Insurance
Fund member until such time as it changes its status to a
Savings Association Insurance Fund member'' and inserting
``insured by the Deposit Insurance Fund'';
(E) in subsection (t)(5)(D)(iii)(II), by striking
``affected deposit insurance fund'' and inserting ``Deposit
Insurance Fund'';
(F) in subsection (t)(7)(C)(i)(I), by striking ``affected
deposit insurance fund'' and inserting ``Deposit Insurance
Fund''; and
(G) in subsection (v)(2)(A)(i), by striking ``the Savings
Association Insurance Fund'' and inserting ``or the Deposit
Insurance Fund''; and
(2) in section 10 (12 U.S.C. 1467a)--
(A) in subsection (c)(6)(D), by striking ``this title'' and
inserting ``this Act'';
(B) in subsection (e)(1)(B), by striking ``Savings
Association Insurance Fund or Bank Insurance Fund'' and
inserting ``Deposit Insurance Fund'';
(C) in subsection (e)(2), by striking ``Savings Association
Insurance Fund or the Bank Insurance Fund'' and inserting
``Deposit Insurance Fund'';
(D) in subsection (e)(4)(B), by striking ``subsection (1)''
and inserting ``subsection (l)'';
(E) in subsection (g)(3)(A), by striking ``(5) of this
section'' and inserting ``(5) of this subsection'';
(F) in subsection (i), by redesignating paragraph (5) as
paragraph (4);
(G) in subsection (m)(3), by striking subparagraph (E) and
by redesignating subparagraphs (F), (G), and (H) as
subparagraphs (E), (F), and (G), respectively;
(H) in subsection (m)(7)(A), by striking ``during period''
and inserting ``during the period''; and
(I) in subsection (o)(3)(D), by striking ``sections 5(s)
and (t) of this Act'' and inserting ``subsections (s) and (t)
of section 5''.
(g) Amendments to the National Housing Act.--The National
Housing Act (12 U.S.C. 1701 et seq.) is amended--
(1) in section 317(b)(1)(B) (12 U.S.C. 1723i(b)(1)(B)), by
striking ``Bank Insurance Fund for banks or through the
Savings Association Insurance Fund for savings associations''
and inserting ``Deposit Insurance Fund''; and
(2) in section 536(b)(1)(B)(ii) (12 U.S.C. 1735f-
14(b)(1)(B)(ii)), by striking ``Bank Insurance Fund for banks
and through the Savings Association Insurance Fund for
savings associations'' and inserting ``Deposit Insurance
Fund''.
(h) Amendments to the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989.--The Financial
Institutions Reform, Recovery, and Enforcement Act of 1989
(12 U.S.C. 1811 note) is amended--
(1) in section 951(b)(3)(B) (12 U.S.C. 1833a(b)(3)(B)), by
inserting ``and after the merger of such funds, the Deposit
Insurance Fund,'' after ``the Savings Association Insurance
Fund,''; and
(2) in section 1112(c)(1)(B) (12 U.S.C. 3341(c)(1)(B)), by
striking ``Bank Insurance Fund, the Savings Association
Insurance Fund,'' and inserting ``Deposit Insurance Fund''.
(i) Amendment to the Bank Holding Company Act of 1956.--The
Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.) is
amended--
(1) in section 2(j)(2) (12 U.S.C. 1841(j)(2)), by striking
``Savings Association Insurance Fund'' and inserting
``Deposit Insurance Fund''; and
(2) in section 3(d)(1)(D)(iii) (12 U.S.C.
1842(d)(1)(D)(iii)), by striking ``appropriate deposit
insurance fund'' and inserting ``Deposit Insurance Fund''.
(j) Amendments to the Gramm-Leach-Bliley Act.--Section 114
of the Gramm-Leach-Bliley Act (12 U.S.C. 1828a) is amended by
striking ``any Federal deposit insurance fund'' in subsection
(a)(1)(B), paragraphs (2)(B) and (4)(B) of subsection (b),
and subsection (c)(1)(B), each place that term appears and
inserting ``the Deposit Insurance Fund''.
(k) Effective Date.--This section and the amendments made
by this section shall take effect on the first day of the
first calendar quarter that begins after the end of the 90-
day period beginning on the date of the enactment of this
Act.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Ohio (Mr. Oxley) and the gentleman from New York (Mr. LaFalce) each
will control 20 minutes.
The Chair recognizes the gentleman from Ohio (Mr. Oxley).
General Leave
Mr. OXLEY. Mr. Speaker, I ask unanimous consent that all Members may
have 5 legislative days within which to revise and extend their remarks
on this legislation, and to insert extraneous material on the bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Ohio?
There was no objection.
Mr. OSE. Mr. Speaker, I am in opposition to the bill, and I have a
procedural question to ask as to who would claim the time in
opposition.
The SPEAKER pro tempore. Is the gentleman from New York (Mr. LaFalce)
opposed to the motion?
Mr. LaFALCE. Mr. Speaker, I am not opposed to the motion.
The SPEAKER pro tempore. The gentleman from California (Mr. Ose) will
control 20 minutes in opposition to the motion.
Mr. OXLEY. Mr. Speaker, I yield myself 5 minutes.
Mr. Speaker, I rise today in strong support of H.R. 3717, the Federal
Deposit Insurance Reform Act of 2002. The U.S. has the largest, most
complex, most stable banking system in the world. Deposit insurance is
one of the major reasons for this stability. Today we will strengthen
this system so that it continues to serve as a model for the world.
Depositors, taxpayers, and depository institutions will be well
served by this legislation which will modernize the Federal deposit
insurance system. Federal deposit insurance was created by Congress in
1934 and it has successfully served the American people for 68 years.
Public confidence has been maintained and the stability of the Nation's
banking system has been preserved during periods of financial
uncertainty.
[[Page H2795]]
The deposit insurance system has been significantly modified only
twice since 1934, both times in response to the savings and loan crisis
of the late 1980s and early 1990s. During this crisis, the FDIC and the
RTC resolved 2,363 failures of insured institutions involving more than
$700 billion in assets. As FDIC Chairman Powell stated, ``There were no
bank runs, no panics, no disruptions to financial markets, and no
debilitating impact on overall economic activity.'' The existence of
Federal deposit insurance was a critical factor in the financial
markets remaining relatively stable.
Mr. Speaker, H.R. 3717, though technical in nature, seeks to apply
the experiences of the last decade to today's banking marketplace. It
is 21st century legislation for a 21st century banking industry. While
the purpose of deposit insurance remains the same, industry growth,
bank expansion from new powers, and the integration of banking and
securities activities require that the scope and coverage of deposit
insurance evolve so as to reflect the realities of a modern financial
services industry.
Moreover, the presence of Federal deposit insurance continues to be a
key consideration for consumers in their decisions about where they do
their banking and what level of deposit risk they are willing to
assume.
Mr. Speaker, there is broad consensus in this body. The Bush
administration and the Federal banking and thrift regulators and
business and consumer groups are in favor of improving and
strengthening the deposit insurance system and making it more
responsive to the cyclical nature of banking activities in the post-
Gramm-Leach-Bliley financial and economic environment. This legislation
fulfills our commitment to the American public. Indeed, H.R. 3717 was
reported out of the committee on a bipartisan vote of 52 to 2, a
testimony to its responsiveness and timeliness.
This legislation is both responsive and responsible. It recognizes
that depositors, savers, and investors have integrated financial needs,
and that the deposit insurance system must be stronger, more flexible,
and adaptable to changing depositor behaviors in ``real time.''
This bill allows the FDIC to do just that. It provides the FDIC with
the necessary authority and supervisory tools to manage the deposit
insurance fund in a way that balances all affected interests. It
recognizes that all financial institutions present some type of risk,
and that deposit insurance benefits all stakeholders, consumers,
institutions and taxpayers, and that its associated benefit and costs
should be allocated evenly and fairly. It expands benefits for
depositors based upon their current needs and ensures premiums are
assessed on insured financial institutions based upon their applicable
risks.
Finally, this bill has mechanisms to ensure that the deposit
insurance fund grows responsibly, that it remains at a more than
adequate level during good and bad times, and that excess funds are
returned to communities for loans and other economic growth programs.
I want to thank the gentleman from Alabama (Mr. Bachus), the chairman
of the Subcommittee on Financial Institutions and Consumer Credit of
the Committee on Financial Services, for taking on this challenging,
highly technical legislative project and for engaging all of the major
stakeholders in developing a bipartisan piece of well-balanced, highly
effective 21st century legislation. I also want to thank all of the
bipartisan cosponsors of this bill.
Mr. Speaker, I strongly urge my colleagues to support this bill. By
doing so we ensure the public continues to maintain its confidence in
the U.S. financial services industry, by far the most stable in the
world.
Mr. Speaker, I ask unanimous consent that the gentleman from Alabama
(Mr. Bachus) be permitted to control the remainder of my time for
consideration of this legislation.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Ohio?
There was no objection.
Mr. OXLEY. Mr. Speaker, I reserve the balance of my time.
Mr. OSE. Mr. Speaker, I rise today to oppose this legislation, and I
yield myself such time as I may consume.
Much of this bill is useful, and it is needed reform, and I do want
to commend the chairman of the full committee, the gentleman from Ohio
(Mr. Oxley), and the chairman of the subcommittee, the gentleman from
Alabama (Mr. Bachus) for their hard work. In fact, I fully support most
of the reforms in this bill that will provide needed flexibility and
stability to the insurance corporation and the deposit insurance fund.
I support merging the Bank Insurance Fund and the Savings Association
Insurance Fund. I support the flexibility provided to adjust reserve
ratios to reflect risk, and I support the increases in protection that
are provided for retirement fund accounts.
However, there is something here that I cannot support, and it,
frankly, in balance, outweighs the rest of the bill. That is that I
cannot support a bill that places the taxpayers at greater risk without
any benefit for consumers.
This bill, in part, would increase the insured levels of individual
accounts from $100,000 per account to $130,000 per account, and also it
includes future automatic increases that would result from inflation.
The fact of the matter is I do not understand why this particular
provision was included when every expert has testified or written that
this is, in fact, a bad idea.
Let me just highlight a few quotes from some of our Nation's top
experts on fiscal policy.
The first I would cite is Alan Greenspan, the chairman of the Federal
Reserve Board, who testified in opposition to these particular
increases in deposit insurance coverages in front of both the House and
Senate committees and followed up his testimony with a written letter.
In his most recent testimony, Chairman Greenspan said, ``In the Board's
judgment, it is unlikely that increased coverage, even by indexing,
would add measurably to the stability of the banking system today.
Macroeconomic policy and other elements of the safety net, combined
with the current, still significant level of deposit insurance,
continue to be an important bulwark against bank runs. Thus, the
problem that increased coverage is designed to solve must be related to
either the individual depositor, the party originally intended to be
protected, or to the individual bank or thrift. Clearly, both groups
would prefer higher coverage if it costs them nothing, but Congress
needs to be clear about the nature of a specific problem for which
increased coverage would be the solution.''
Clearly he is suggesting in no uncertain terms that this is a
solution in search of a problem.
The Bush administration also opposes increases in the coverage. Both
Secretary of the Treasury Paul O'Neill and Under Secretary of the
Treasury for Domestic Monetary Policy Peter R. Fisher have testified on
this issue. Secretary O'Neill also wrote to the committee noting that,
``However, the administration continues to believe that the deposit
insurance coverage level should remain unchanged. There is no evidence
that an increase in the coverage level would promote competition or
materially improve the ability of community banks to obtain funds.
Moreover, raising coverage could weaken market discipline and increase
risk to the FDIC and, ultimately, the taxpayers.''
Under Secretary Fisher said just 2 weeks ago, ``Given the lack of
potential benefits for consumers or of potential improvement in banking
system competition, we cannot justify the increase in the government's
off-balance sheet liabilities that would result from higher deposit
insurance coverage limits. These higher contingent liabilities enlarge
the exposure of the insurance fund and ultimately of taxpayers to
potential future losses. Moreover, increasing the overall coverage
limit could weaken market discipline and further increase the level of
risk to the FDIC and taxpayers.''
My colleagues will note the similarity between that last piece of
quote of Mr. Fisher and Mr. O'Neill, Secretary O'Neill's. Again, I
repeat, Secretary O'Neill said, ``Raising coverage could weaken market
discipline and increase risk.'' Mr. Fisher said, ``Increasing the
overall coverage limit could weaken market discipline and further
increase the level of risk.''
However, this is not all of the people who have testified. Other
leaders have also spoken up. The Comptroller of the
[[Page H2796]]
Currency, John D. Hawke, Jr. testified, ``We see no compelling evidence
that increased coverage levels would offer depositors substantial
benefits. Anyone who wants to use insured bank deposits as a means of
holding their wealth can do so virtually without limits, subject only
to the minor inconvenience of having to open accounts at multiple
banks. Despite the ability of depositors to achieve almost unlimited
coverage at banks, money market mutual funds, which have some of the
same features as bank transactions accounts and generally offer higher
returns than bank deposits, today hold over $2 trillion. Because these
funds could easily be placed in insured accounts, these facts suggest
that many depositors are not concerned about the additional risk
involved in holding their liquid funds in uninsured form, and that
households are comfortable with the status quo.''
The Director of the Office of Thrift Supervision, Mr. James Gilleran,
also testified on this subject saying, ``While I applaud efforts to
increase the ability of institutions, particularly small community-
based depositories, to attract more deposits, I am not convinced that
increasing the insurance cap will achieve this result. I do not think
this approach can be supported from a cost-benefit standpoint.
Increasing the current insurance coverage level to $130,000 would incur
significant costs for insured institutions, since premiums would
necessarily be increased. The benefits of an increase are unclear. I
have heard from many of our institutions that they see no merit to
bumping up the current limit for standard accounts. In their view,
projected increases in insured deposits would not lead to a substantive
increase in new accounts. Moreover, individuals with amounts in excess
of $100,000 already have numerous opportunities to invest their funds
in one or more depository institutions and obtain full insurance
coverage for their funds.''
Mr. Speaker, I want to again just repeat, the Comptroller of the
Currency John Hawke says people have the ability to open multiple
accounts to hold their money, and that, in fact, they seem to have
personally gotten comfortable with the level of risk in excess of
$100,000; and Director of the Office of Thrift Supervision James
Gilleran says people have significant and ample opportunities to open
accounts at multiple depository institutions and provide themselves
with the insurance coverage that they might otherwise seek.
Now, interestingly enough, it is not just the administration
officials who are speaking out. The Financial Services Roundtable wrote
to the chairman, the gentleman from Ohio (Mr. Oxley), with their
concerns noting, ``We are writing in opposition to the provisions of
H.R. 3717 that would raise deposit insurance coverage levels and
increase premiums on all institutions. Raising coverage could weaken
market discipline and increase risk to the FDIC, all insured
institutions and, ultimately, taxpayers. The FDIC has said that these
coverage increases could dilute the fund by as much as 13.6 basis
points or $6.1 billion,'' $6.1 billion. ``We believe that this is too
high a price to pay for something that could yield minimal, if any,
benefit.'' This letter was signed by a former Congressman, Steve
Bartlett.
In addition, the Association for Financial Professionals, which
represents many of the men and women in the business community who deal
with finances every day, wrote just this week that, ``The deposit
insurance coverage level should remain unchanged. It is not clear to us
that a higher coverage limit would address funding concerns at smaller
institutions. But, more importantly, we do not believe that the use of
the deposit insurance system for the competitive purpose of trying to
help some banks with their funding is an appropriate public policy
position. Deposit insurance coverage is not a competitive issue.
Coverage is intended to benefit the depositors, not banks.''
{time} 1945
The Association of Financial Professionals chair also testified
before the subcommittee of the gentleman from Alabama (Mr. Bachus) on
this very issue. George Kauffman, a professor of banking and finance at
Loyola University in Chicago, Illinois, also wrote on the issue, noting
that an increase in coverage ``is likely to encourage some depositors
to become less concerned about the financial health of their banks, and
banks to take more risks, which would increase the chances of bank
losses and failures.''
Many of the expert witnesses who testified before the subcommittee of
the gentleman from Alabama spoke at great detail in opposition to an
increase in coverage. I do not know why Members disregarded the advice
they solicited.
Mr. Speaker, I reserve the balance of my time.
Mr. BACHUS. Mr. Speaker, I yield 5 minutes to the gentleman from New
York (Mr. LaFalce), the ranking member of the Committee.
Mr. LaFALCE. Mr. Speaker, I thank the distinguished chairman of the
Subcommittee on Financial Institutions and Consumer Credit for yielding
time to me.
Mr. Speaker, our Federal deposit insurance system is a critically
important element in our economic stability, and it has served our
people quite well for almost 70 years. I do believe that H.R. 3717
makes some very important improvements to that system.
Among the bill's strong points: it would merge the bank insurance
fund, the BIF, and the savings association insurance fund, the SAIF. It
would make the system less pro-cyclical by permitting the FDIC to
charge risk-based assessments at all times, and it would eliminate the
so-called ``cliff'' of extremely high required assessments should the
fund fall below the Designated Reserve Ratio for an extended period.
It also deals with the so-called ``free rider'' problem. It also
provides the FDIC with enhanced flexibility to manage the fund.
Now, for years I and a number of other Members and industry leaders
and regulators have been calling for these reforms; and I am pleased,
very pleased, that these reforms are included in this legislation that
we consider today.
I am also very pleased that the long-standing law encouraging life-
line banking that the gentlewoman from California (Ms. Waters) has
promoted since she has been in Congress will be made operational by a
provision in this bill that she drafted. All those factors persuaded me
to support going forward on this bill.
On the other hand, there are some provisions of the bill, most of
them articulated by the gentleman from California (Mr. Ose), that do
give me some concern. I hope we will be able to give closer attention
to them in conference, should we ever get to a conference. These are
features that could result in increased risk to the Federal deposit
insurance funds and the banking system.
Specifically, I am concerned that the increase in the coverage limits
for standard bank deposits and the increase in the limits for municipal
deposits, especially, could create increased incentives for risk-taking
by banks, thrifts, and credit unions without an appropriate
compensating benefit for depositors, and without any assurance that the
increased limits will result in a net increase in deposit in the
institutions that claim these increases are needed to fund loans to
their customers.
My concerns are not isolated. They are shared by Federal Reserve
Chairman Alan Greenspan, by the FDIC chairman, by the former Secretary
of the Treasury, Larry Summers, and by the present Secretary of the
Treasury, Paul O'Neill. Mr. O'Neill points out that ``an increase in
coverage would primarily benefit high net worth individuals, and do
little for the great majority of savers who have deposit balances far
below the current coverage limit.''
To raise the general coverage level to $130,000 would, the FDIC
estimates, reduce the fund balance by almost four basis points
immediately, and more than an additional four basis points in the
future. Now, eight basis points may not seem like much, but it would be
the difference today between a combined fund ratio of 1.29 above
today's statutory designated reserve ratio and 1.21, which is below the
current DRR of 1.25.
Under current law, a fund ratio at that level would definitely result
in increased premiums and under this legislation would likely prompt
the FDIC to begin to assess higher insurance premiums.
[[Page H2797]]
Every basis point of premiums takes money out of the banking system
and away from lending to communities. The CBO predicts that the bill
will result in a net premium increase to banks, thrifts, and credit
unions of $3.5 billion over 10 years. That is $3.5 billion that could
be used for community lending.
I am encouraged that the gentleman from Ohio (Chairman Oxley) and the
subcommittee chairman, the gentleman from Alabama (Mr. Bachus), have
been willing to address some of my concerns about the increased
coverage by agreeing to reduce the maximum municipal deposit insurance
limit from $5 million to $2 million. The lower limit reduces risk to
the deposit insurance fund and the banking system, but it still permits
more than 80 percent of the Nation's local governments to place all
their cash in their local community banks, while enjoying the maximum
FDIC protection provided by the bill.
On balance, however, especially because of the merger of the BIF and
the SAIF, the Federal Deposit Insurance Reform Act of 2002 represents a
serious effort to reform our current deposit insurance system, and it
should be taken to the next step in the legislative process.
I look forward to working with the chairman of the full committee,
the subcommittee, the ranking members, and the Members of the other
body to reduce the legislation's potential increased risk to the
Federal insured deposit system, and hence, the American taxpayer.
Mr. OSE. Mr. Speaker, I yield 4 minutes to the gentlewoman from New
York (Mrs. Maloney).
Mrs. MALONEY of New York. Mr. Speaker, I thank my colleague and
friend, the gentleman from California (Mr. Ose), for yielding me the
time.
Mr. Speaker, today we are considering one of the most important
reforms to our Nation's banking system that Congress will vote on for
many years. It was at our Nation's darkest economic hour that the
deposit insurance system was founded to save our country's banking
system. The bill we are considering on the floor today makes many
positive changes to the system, but also includes one provision that in
my opinion is seriously damaging.
As other Members have stated, the underlying bill takes some very
important steps forward. We increase the long-term stability of the
deposit insurance funds by combining the BIF and the SAIF. This merger
is long past due.
We also eliminate the 23 basis point ``cliff'' that mandated a
massive potential charge to the system at the worst possible time.
Additionally, the bill contains language added during the full
committee markup in the amendment in the nature of a substitute dealing
with calculating dividends and credits that I authored with the
gentleman from Nebraska (Mr. Bereuter).
Minor changes to the language of this provision have been made, in
full agreement with the FDIC and the bill on the floor before us today.
At its heart, the provision ensures that any excess funds that are
returned to financial institutions under the bill, either through
assessment credits or dividends, be given in proportion to the
contributions these institutions have made to capitalize the insurance
funds. Banks and thrifts have made sizeable contributions to the
deposit insurance funds over the years. Those contributions should be
given great weight when determining what proportion of any excess in
the deposit insurance fund those institutions are entitled to.
Importantly, not only do these provisions recognize the contributions
of those institutions that originally capitalized insurance funds, but
they also recognize the new capital put in by institutions now and in
the future. In this way, a fair distribution of any excess capital in
the insurance fund will occur. This is a very positive step, and I
thank the gentleman from Nebraska (Mr. Bereuter) and his staff for
working with me and my staff on this language.
Unfortunately, this bill also plays a dangerous game by increasing
deposit insurance coverage by 30 percent, and increasing risk to the
deposit insurance fund.
I sat through many hearings on this issue and listened to all the
testimony. Today, I am in general agreement with statements by FDIC
Chairman Don Powell, Federal Reserve Chairman Alan Greenspan, Treasury
Secretary Paul O'Neill, and many if not most in the banking industry
itself who do not see a reason for a major increase in basic insurance
coverage.
As Secretary O'Neill wrote to the committee, and I quote, ``An
increase in coverage would primarily benefit high net worth individuals
and do little for the great majority of savers.''
Alan Greenspan weighed in writing that ``The FDIC's recent
projections of losses suggest that any expansion in coverage would have
to be matched by increases in premiums in order to raise the reserve
coverage of the fund.''
Accordingly, I had planned to offer an amendment with my good friend,
the gentleman from California (Mr. Ose), to keep the coverage level at
the $100,000 level. This is a huge issue that Congress should have to
decide on the record, and I would have preferred that this bill come to
the floor under such a rule.
While I strongly oppose this increase in coverage, I am supporting
the bill on the floor today because I believe it improves the system
overall. I am truly hopeful that the Senate is able to fix the coverage
level as the process moves forward; and I want to thank the ranking
member, the gentleman from New York (Mr. LaFalce), and the gentlewoman
from California (Ms. Waters) and the gentleman from Ohio (Chairman
Oxley) and the gentleman from Alabama (Mr. Bachus) for moving this very
important bill forward. I hope the final product that returns from the
Senate repairs the flaws with the legislation we are voting on today.
Mr. BACHUS. Mr. Speaker, I yield 2 minutes to the gentlewoman from
New York (Mrs. Kelly) to speak in support of the legislation.
Mrs. KELLY. Mr. Speaker, I thank the gentleman from Alabama for
yielding me the time.
Mr. Speaker, I rise today in strong support for H.R. 3717, the
Federal Deposit Insurance Reform Act. This legislation should be
supported for two important reasons: first, it increases deposit
insurance coverage for the first time since 1980; and, second, the bill
introduces flexibility into the designated reserve ratio.
As we are all aware, the FDIC insurance plays a critical role in our
Nation's financial system, ensuring both consumer confidence in banks
and stability in the system. Today, community banks are facing serious
funding challenges due to the lack of core deposits, which is why an
increase in the deposit insurance coverage levels is such an important
issue.
While I support higher deposit insurance levels, I also support the
increase in the bill which raises the Federal deposit coverage to
$130,000. It provides for automatic inflation adjustments and provides
for up to $2 million in municipal deposit coverage.
Increasing coverage levels would benefit communities, retirees,
consumers, farmers, the economy, and small business customers by
enabling depositors to keep more of their money in local banks where it
can be reinvested for community projects and local lending.
In addition, the legislation removes the current hard target of the
designated reserve ratio and replaces it with a flexible range. This
change will allow banks to do their job and provide credit when it is
most important: when the economy is struggling.
This is an acknowledgment of the harsh effect these assessments can
have on the economy and allows the FDIC to coordinate the imposition of
such assessments with the Federal Reserve. This legislation enjoys
strong bipartisan support, having passed the Committee on Financial
Services by a vote of 52 to 2.
I ask all my colleagues to join me in support of strong legislation
which will enhance the effectiveness of the FDIC and help consumers and
our communities.
Mr. OSE. Mr. Speaker, I yield myself such time as I may consume. I
feel like Churchill up here when I hear the 52 to 2 vote.
Mr. Speaker, I do want to say, one of the things that the gentlewoman
from New York (Mrs. Kelly) mentioned was the impact on, in particular,
rural communities, where we have such trouble keeping deposits in the
community because of the ability to go get higher returns outside.
[[Page H2798]]
Representing a rural community, we could have dealt with this
particular issue by crafting, in my opinion, some sort of vehicle
whereby banks in rural communities, under some set of conditions, could
have addressed that. I regret that this idea only came to me late in
the process, but I would hope that the conference committee would at
least consider that in their deliberations.
Mr. Speaker, I yield 3 minutes to the gentleman from California (Mr.
Rohrabacher).
{time} 2000
Parliamentary Inquiry
Mr. BACHUS. Mr. Speaker, parliamentary inquiry.
Mr. Speaker, the gentleman consumed about a minute on that
explanation, and that does go towards his time, does it not?
The SPEAKER pro tempore (Mr. Simpson). It does.
Mr. OSE. Mr. Speaker, I yield 4 minutes to the gentleman from
California (Mr. Rohrabacher).
Mr. ROHRABACHER. Mr. Speaker, I rise in strong opposition to H.R.
3717. The last speaker, my colleague, the gentlewoman from New York
(Mrs. Kelly), mentioned that this proposal would be the first major
increase in the Federal deposit insurance in 20 years. Well, let us
take a look at what happened 20 years ago when we had a major increase
in federal deposit insurance. What happened? Let us think about it.
What happened 20 years ago when there was a major increase? There was
a complete meltdown of the savings and loan industry and it ended up
costing us, the taxpayers, tens of billions, if not hundreds of
billions, of dollars. I am not sure exactly what it was, but it was one
of the worst economic catastrophes this country has had to deal with.
So here we are again. We want to have a major increase in Federal
deposit insurance. Now, let us make this clear, what Federal deposit
insurance is supposed to be all about. Federal deposit insurance came
about in the 1930s as a way of trying to protect the little guy and
give the little guy some confidence to put his or her money into a
small bank so that that person would have some confidence and their
savings would be protected. I think it started out at $3,500. For a
long time it stayed at $10,000. It stayed there for a long time at
$10,000 because that is how much regular Americans could expect to try
to save.
Well, guess what? Back in 1980 they took it up to $100,000 for a
deposit insurance; and then on top of that, it is not just one account
of $100,000 we are talking about.
Now, we are talking about not just protecting the little guy who
wants to save 5 or $10,000 in an account, we are talking about rich
people taking advantage of a program that was established to help
little guys, so you have multiple accounts. As the gentleman from
California (Mr. Ose) pointed out, rich people can take $100,000 and
just pour it into account after account after being in various
different banks. And, in fact, your own bank, one bank can sort of
manipulate the system so that an individual, a wealthy individual, can
have seven individual accounts in one bank.
Now, this was not set up to try to protect people who are multi,
multi-millionaires, but that is what it has turned into. And, by the
way, this increase, this increase in the level will only make that
matter worse. What we could do is we should be going in the opposite
direction. What this has evolved into and what this continues to evolve
into is the little guys now are being taxed in order to take away the
risk for the big guys.
So what we now have is a Federal deposit insurance program that taxes
the little guy in order to protect the fat cats from any risk. That is
not the way it was supposed to be. And by increasing that deposit
insurance, we are making that even worse.
And by the way, the gentleman from California (Mr. Ose) quoted expert
after expert after expert saying that this would have the same
destabilizing effect that it had in 1980, to increase this deposit
insurance. It takes away from people's consideration of where they are
placing their money. It takes risk off their shoulders so it makes them
more irresponsible even to a certain degree. We do not want to put more
irresponsibilities into our system. Let us do the opposite. Let us
decrease Federal deposit insurance so it only protects the little guy
instead of opening up our system to be exploited by a bunch of fat cats
at the expense of the little guy.
I would ask all of my colleagues to oppose this dramatic increase in
Federal deposit insurance even though there are some reforms that were
part of this legislation that are certainly good reforms.
Mr. BACHUS. Mr. Speaker, I yield 2 minutes to the gentleman from
South Dakota (Mr. Thune) in support of the legislation.
Mr. THUNE. Mr. Speaker, I thank the gentleman for yielding me time.
Mr. Speaker, I rise today in support of the Deposit Insurance Reform
Act and I am pleased that it has been brought to the floor. I credit
the gentleman from Alabama (Mr. Bachus) for his hard work and
leadership as well as colleagues on both sides of the aisle and the
Committee on Financial Services for getting this bill to the House
floor for a vote.
Deposit insurance helps banks keep local deposits at work in local
communities. In the communities of South Dakota, deposit insurance
helps banks attract deposits to fund consumer and small business loans,
community development projects, mortgages, education assistance and
small business start-ups.
As we know, this legislation increases deposit insurance coverage to
$130,000 and that indexes it for inflation. This will be helpful to
rural communities as it helps to mitigate the impact of the declining
rural population and fewer depositors. I believe that local dollars
should be invested locally and this bill will make that happen. Rural
banks often find depositors see the current $100,000 insurance limit as
a deposit cap, limiting their ability to grow, thrive and serve their
communities. Additional deposits over $100,000 often force rural
residents to send deposits to other banks outside of their area. Rural
residents, oftentimes elderly, should not have to send their deposits
elsewhere. They ought to feel safe and secure depositing their funds in
the local banks where the money can be used to support local lending
and local economies.
If it stays in the community, this money can serve as lendable funds
for local projects in development in a small community. When depositors
send their money to other communities, the cycle of reduced investment
and opportunity and increased population flights only continues.
This legislation will also help farmers keep on pace with the
dynamically changing agricultural economy. As production input costs
and technology increase, local banks are constrained by artificially
low deposit insurance caps, while at the same time being asked to make
loans for increasingly costly farming operations. These loans can
easily exceed what the business or farming operation can have insured
at that banking institution.
Mr. Speaker, I believe H.R. 3717 is common-sense legislation. It will
provide security for bank customers and diversify the economies of
small communities. I ask my colleagues to vote yes. This reform will be
good for rural communities across this country that many of us
represent.
The SPEAKER pro tempore. The gentleman from Alabama (Mr. Bachus) has
6\1/2\ minutes remaining. The gentleman from California (Mr. Ose) has 1
minute remaining.
Mr. OSE. Mr. Speaker, I reserve the balance of my time.
Mr. BACHUS. Mr. Speaker, I yield 3\1/2\ minutes to the gentlewoman
from California (Ms. Waters) to speak in support of the legislation.
Ms. WATERS. Mr. Speaker, I rise in support of H.R. 3717. Deposit
insurance has served America well for over 65 years. It has maintained
public confidence in our banking system throughout times of prosperity
and times that were not so good.
The bill we reported out of the Committee on Financial Services is
designed to maintain and strengthen today's system for tomorrow's
consumers so that we can ensure that we have a deposit insurance system
that will serve us well throughout the new millennium. I am
particularly concerned
[[Page H2799]]
about our small independent community banks and I believe they will
benefit from this legislation.
Not everyone agrees with this increase in FDIC. However, the Senate
will continue to reconcile some of the differences that have been
articulated, but I believe we should vote to pass this bill off the
floor. This legislation merges the bank insurance funds and the savings
association insurance funds into one deposit insurance fund. It also
grants the FDIC increased flexibility to manage the funds, particularly
in replacing the hard trigger designated reserve ratio with a range
which will permit the FDIC to respond to economic conditions in setting
the designated reserve ratio.
I am particularly pleased that the legislation includes an amendment
that I offered during subcommittee consideration. This amendment
represents a small but important change that will implement a law that
has been on the books since 1991. During the consideration of the FDIC
Improvement Act, then-Congressman Tom Ridge and Floyd Flake sponsored
legislation to provide for a discount in deposit insurance assessment
for deposits attributable to lifeline for basic banking accounts.
Basic banking is just what it sounds like. At least one quarter of
low income families are currently unbanked, that is, they exist outside
of the traditional banking system, often relying on check-cashing
services or notorious payday lenders to facilitate basic transactions,
generally paying exorbitant fees in the process.
We all take for granted the ease and convenience of having a checking
account, but many families lack that luxury because they are unable to
maintain large minimum balances in these accounts. These lifeline
accounts, by their very nature, do not hold large deposits.
Furthermore, the FDIC concedes that any effect on the fund would be
negligible. However, implementation of the Flake/Ridge provision was
wholly dependent on appropriated funds which never materialized.
My amendment simply removes the requirement for appropriated funds so
that this provision, after more than a decade on the books, can finally
be implemented. My amendment was adopted by voice vote at subcommittee
and upheld at full committee by a bipartisan vote. It attracted the
support of both industry and consumer groups, including AARP, the
Independent Community Bankers of America, the New Jersey League of
Community Bankers, the Consumer Federation of America, U.S. Public
Interest Research Group, Consumers Union and the National Consumer Law
Center.
I would like to thank all of my colleagues on the Committee on
Financial Services who supported the amendment, especially the
gentleman from Alabama (Mr. Bachus). He has worked tirelessly in
support of this provision because he truly understands that providing a
small incentive for banks to offer these accounts can make all the
difference in the world for millions of American families. I thank him
once again.
Mr. BACHUS. Mr. Speaker, we had several speakers that wanted to speak
out in favor of this measure and we have only got a limited amount of
time. I ask unanimous consent that both sides be given an additional 10
minutes.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Alabama?
There was no objection.
The SPEAKER pro tempore. The gentleman from Alabama (Mr. Bachus) now
has 13 minutes remaining. The gentleman from California (Mr. Ose) has
11 minutes remaining.
Mr. BACHUS. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, first of all, I want to stress the great consensus of
opinion on most aspects of this deposit insurance legislation, and I
mean that sincerely. There is broad support from the administration.
There is broad support from the regulatory agencies. There is broad
support from Members of the House and members of the Senate, from those
of the Democratic party and the Republican party for most aspects of
this bill. And as I think this debate has pretty clearly identified, it
is 10 percent of this bill that has caused 90 percent of the problems
for certain members of the committee.
What I want to address, first of all, is that 90 percent of the bill
which I find really no opposition for, and I want to stress those
things because I think they are the heart of this bill. The first one
is that we merge the bank and thrift insurance funds. That would not
only diversify the risk, and everyone agrees on that, the Treasury, the
Federal Reserve, both the Senate and the House, because the BIF reserve
ratio has recently declined to 1.26. So by combining these funds it
reduces the risk that any of our financial institutions will have to
pay any premiums in the future. It reduces that risk. So whatever else
happens, this legislation will reduce the risk of paying premiums to
the majority of our institutions.
Now, Mr. Speaker, there are certain rapid insured deposit growth,
well, what I am saying is sweep programs have caused a reduction of
four basis points in the BIF program or the BIF reserve ratio funds.
{time} 2015
This is from a very few financial institutions that have set up
multiple subsidiary banks and they are using sweep accounts, and they
are sweeping all that money into FDIC, and they are not compensating
the FDIC and the Federal Reserve, the Treasury, the administration; and
I think every Member of our committee agrees that this should not go
on. We have addressed this.
We have reforms in this bill that compensate banks for the adverse
effect of these so-called free riders. We give transition assessment
credits, recognizing the contribution of those banks to the insurance
reserves that they made during the early and mid-1990s, and those
credits will offset future premiums for all but the newest and the most
recent new institutions and also those fast-growing institutions.
The premium-setting reforms prevent future free rider inequity, and
there is consensus on this and there is consensus that that ought to be
done.
Finally, we have eliminated the hard trigger in the current system
that can force banks to pay significantly higher premiums during
economic downturns. That promotes economic stability and the well-being
of the financial system. I have not heard a dissenting voice from us
doing that. So those are the main components of the bill.
Where the disagreement is is the coverage rates; and Mr. Speaker, let
me simply point out these things about the coverage rates, and I am
going to go back for a minute to those few large institutions,
financial institutions that have established sweep accounts and have
established multiple subsidiary banks.
What those institutions are doing is they are going out and they are
advertising $700,000, $800,000, $1 million worth of coverage, and my
colleagues have heard testimony from those who oppose a coverage
increase, that the people do not want an increase of coverage, they do
not need an increase of coverage. The same Treasury Department that
says people do not want it have also come to us and said these very
institutions that are offering $700,000 worth of coverage or $800,000
worth of coverage, ``that they have reduced these large financial
companies controlling multiple industry banks, have reduced the BIF
reserve ratio by four basis points to an alarming level without
compensating the FDIC.''
Now, I ask all the Members this question: If they are sweeping all
this money into these accounts by offering additional coverage, where
is the money coming from if it is not coming from people who want
additional coverage? How can the Treasury and how can the Federal
Reserve and how can certain Members of the House and Senate say that
people do not need additional coverage, they will not use additional
coverage, and yet at the same time agree that these, really a couple of
financial institutions mainly, are sweeping millions and millions and
millions of dollars into these accounts? Well, obviously the people are
using these accounts, and obviously they feel the need for this
protection; and that is why we need additional coverage.
In 1974, we increased coverage. We over-doubled coverage. Was there a
crisis then? No, there was no crisis then. So increasing it 150 percent
did not cause any crisis then. In 1980 we increased the coverage for
all the banks
[[Page H2800]]
in this country. Did banks fail? No, banks did not fail. It was savings
and loans that fell. Yes, we increased it for savings and loans; but if
it was because of increase of coverage, do my colleagues not think
banks would have failed, along with the savings and loans? Of course
they would have, but it was only the savings and loans.
Yes, we got a lot of testimony about, oh, the last time we did this
there was the savings and loans, several of them failed, but they do
not say the banks did not fail and we increased it for banks. It just
does not fly.
In 1974, the coverage was at $40,000. If we went back to 1974 and we
increased it allowing for inflation, we would have gone to $140,000. We
only go to $130,000. So we are not even keeping pace with 1974 when the
chairman of the Federal Reserve said we had a safe amount and it was at
a safe level. Well, if that is the case, then I guess he is advocating
for $140,000, not $130,000. When we increased it to $100,000, if we
only adjusted for that inflation today, it would be $200,000, not
$130,000. What we do in this bill is increase it to $130,000, which is
less coverage than the people of the United States had enjoyed in 1974,
in 1980 and at any time.
We do not take care of all the inflationary loss, and we hear a lot
of strange talk up here in Washington. We hear talk that the people do
not need this coverage, but Mr. Speaker, we heard that every time there
was a bank failure, there were people who lost a great amount of their
retirement funds because the coverage was not there. Five thousand
Americans every day sell their home, and the vast majority of them
deposit the proceeds from those sales in their bank account.
The gentleman from California would tell us, and the Federal Reserve
and the Treasury would tell us, that people have an opportunity to open
multiple accounts and establish that money in multiple accounts. Well,
I ask my colleagues, Mr. Speaker, I ask the Members of this body, When
people sell their home, how many of them go out and establish three
bank accounts and deposit that money in three different accounts?
Experience tells us that almost no one does that, and when they deposit
it, when they deposit that $200,000 or $300,000 in a bank account and
that bank fails, they lose two-thirds of their life savings.
Retirement accounts, $150,000, $200,000, not unusual. How many people
go out and establish multiple IRA accounts? Well, I think we know the
answer to that. The AARP has strongly, in fact, they have urged a
greater increase in coverage than we give, because people do not run
around all over town establishing one account here, another account
there, another account there; and they should not have to do that.
They should not have to rely on a couple of large financial
institutions of this country that have come in here and battled against
this bill, and they have said we do not need over $100,000; but those
same companies and the financial services roundtable that has
represented their interests have come up here and told them they do not
need $100,000. Those same companies that were on this hill lobbying
against an increase were going out and buying six or eight banks and
advertising $800,000 worth of coverage, bankrupting the funds; and then
they had the audacity to come up here and oppose this bill and oppose
our efforts to stop their raid on the FDIC.
Thank goodness in committee, thank goodness in subcommittee and thank
goodness in the morning when we vote on this legislation we will pass
it, and we will stop the abuse that we have seen in the last couple of
years on free riders who not only free ride on the FDIC, they come to
the Members of this body and lobby against our efforts to stop their
efforts to, as Peter Fisher said, to reduce the BIF reserve ratio by
four basis points without compensating the fund.
That is what they have done. Certainly they have gimmicked the
system. They are getting a free ride. They are paying nothing; and they
are going to communities like the communities in South Dakota, like
communities in Alabama, communities all over the Nation, and they are
saying we will offer $700,000 worth of coverage; and then they and
friends and supporters that they have at the Federal Reserve and the
Treasury are coming over here and telling us to do something about
these free riders but do not do anything about the free riders which
would interfere with a free ride, do not do anything which allows the
community banks to increase coverage, we do not need an increase of
coverage.
Well, the marketplace is demanding it. The marketplace is getting it.
The free riders have gone out and gotten an increase in coverage, and
it is absolutely ludicrous for us to let this continue to go on.
Mr. Speaker, I reserve the balance of my time.
Mr. OSE. Mr. Speaker, I yield myself such time as I may consume.
Lacking any other speakers, I do want to make a few remarks. I think
the gentleman from Alabama started out very accurately reflecting the
broad consensus on 90 percent of this bill, and I think he closed here
just this moment with a very eloquent case as to why we need to stop
the free rider practice from continuing, but the free rider issue is
not related to the deposit insurance level issue. They are two separate
issues, and they need to be considered separately.
I would just for clarification, I think the gentleman from Alabama
did say that few, if any, banks had failed; and I will say that to my
recollection that Continental Bank failed and that there were a lot of
banks in agricultural areas around this country that failed.
Manufactures Hanover I think had its doors closed, related to the risk
that they undertook in taking the increase in deposits, they received
subsequent to the jump up in 1982 and trying to put them to work to
defray the added costs that they bore from carrying those deposits.
So I agree with him on the free rider thing. But the free rider issue
is separate from the deposit insurance increase issue, and I want to be
clear about that.
The average size in a deposit account, a demand account across this
country is about $10,000, $10,000, not $100,000, not $130,000. The
market sector that the gentleman from Alabama referred to as ``known as
a high income sector,'' they get a lot of preferential treatment from
many financial institutions. It is a marketing aspect of what those
institutions do, and it works very well; but this is not about the free
rider issue. This is about the added risk that comes by increasing
deposit insurance levels and the cost that goes with that that a bank
would have to confront.
I do think, going back to the gentleman from Alabama's (Mr. Bachus)
point about the retirement accounts, absolutely concur about increasing
the level of coverage for retirement accounts. That money is very
conservatively managed. It is a very stable source of funds. The fact
of the matter is the bill takes it to a certain level I would actually
advocate for taking it even further, if I had thought to put an
amendment in at the committee. So I concur with the gentleman that 10
percent of the bill is causing 90 percent of the heartache here.
I do want to complete my statement from earlier, and then I would be
happy to reserve the balance of my time after that. Mr. Speaker, let me
just point out two witnesses who presented extensive, in addition to
all these others that I cited earlier, presented extensive scholarly
materials to the subcommittee in opposition to an increase in the
coverage levels.
First was Mr. Richard Carnell who is an associate professor of law at
Fordham University School of Law who testified: ``I urge Members to
take a skeptical view of proposals to index or otherwise increase the
$100,000 limit on deposit insurance coverage. Proponents of increasing
the coverage limits stress the effects of inflation since 1980. But the
1980 level was by no means normal; adjusted for inflation, it amounted
to an all-time high.''
Professor Carnell was joined by Dr. Kenneth Thomas who is a lecturer
in finance at the Wharton School at the University of Pennsylvania, who
listed 21 major reasons, I will not cite all 21, Mr. Speaker, but 21
major reasons to oppose an increase in the coverage limit. Among those
reasons were, Dr. Thomas spoke at length on the savings and loan
bailout and how increases in 1980 in the deposit insurance coverage
levels led to risky behavior and even larger bailouts.
[[Page H2801]]
{time} 2030
Dr. Thomas highlighted the historical perspective from former FDIC
and Resolution Trust Corporation chairman, and if my colleagues will
recall, the Resolution Trust Corporation was the entity the Federal
Government used to solve the early 1980s problem in the financial
industry, the Resolution Trust Corporation Chairman Seidman, who said,
``The original intent of deposit insurance, which began with a $2,500
insurance limit, was to protect `small savers.' The primary
beneficiaries of the 1980 increase to $100,000 were Wall Street firms
and deposit brokers. The currently proposed increase to $200,000,''
which is not what we are talking about today, we are talking about
$130,000, but the premise still holds, ``the currently proposed
increase to 200,000 has nothing to do with small or even midsized
savers. Besides Wall Street and other money brokers, the only
beneficiaries would be very wealthy and high net worth depositors, a
far cry from the small savers originally envisioned by the FDIC.''
This speaks directly to the comments of the gentleman from Alabama a
moment ago about the sweeps. Dr. Thomas also noted that, ``Considering
the present environment's increased level of risk exposure for the
deposit insurance funds, good public policy dictates consideration of
proposals that reduce, not increase, risk exposure. Any increase in the
deposits covered by the FDIC will increase risk exposure to the
funds.''
Mr. Speaker, I reserve the balance of my time.
The SPEAKER pro tempore (Mr. Simpson). The gentleman from Alabama
(Mr. Bachus) has three-quarters of 1 minute remaining and the gentleman
from California (Mr. Ose) has 5 minutes remaining.
Mr. BACHUS. Mr. Speaker, I yield such time as he may consume to the
gentleman from Ohio (Mr. Gillmor).
(Mr. GILLMOR asked and was given permission to revise and extend his
remarks.)
Mr. GILLMOR. Mr. Speaker, I rise in strong support of the bill,
particularly the municipal deposit part.
I rise today in strong support of H.R. 3717, the Federal Deposit
Insurance Reform Act of 2002. I am very proud to be an original
cosponsor of this legislation and commend Chairman Oxley and
Subcommittee Chairman Bachus for their diligent work and dedication in
crafting this reform package and delivering it to the full House for
consideration. Significant reform of the Federal Deposit Insurance
system is long overdue, specifically with regard to municipal deposit
coverage.
I have worked hard with the cooperation of several other members of
the Financial Services Committee to see a meaningful increase in FDIC
coverage for public deposits included in HR 3717. The Federal Deposit
Insurance Reform Act will provide full FDIC coverage for 80% of all in-
state municipal deposits at an FDIC insured institution up to two
million dollars. This is a vast improvement from the current coverage
cap of 100,000 dollars on each account.
Providing this essential coverage will help local communities keep
public moneys in their area, which will improve the economic climate by
enabling local banks to offer more loans for cars, homes, education and
community needs.
Currently, municipalities are faced with a hard choice when deciding
where to place their deposits. Local officials care about their
communities and would like to foster economic development by putting
their funds in local banks. However, without the guarantee of FDIC
coverage, they are often instead forced to put the money in large out
of state institutions.
It may also be the case that small banks are not even in a position
to accept such deposits. Many states require institutions to
collateralize municipal deposits. This makes it harder for community
and small banks to compete for these funds with larger banks. Many
community banks are so loaned-up that they do not have the available
securities to use as collateral.
Just a few months ago, the FDIC closed a bank in my congressional
district: the Oakwood Deposit Bank in Oakwood, OH. Local municipalities
and other public entities that held deposits at this institution are
now put at risk due to the $100,000 cap in FDIC coverage. In cases of
fraud such as this one, securitization may not have been adequate
insurance as many bonds and securities appearing on the bank's balance
sheet may not still be held. The expansion of FDIC coverage is the only
way to truly alleviate this risk to local public entities.
Again, I would like to thank Chairman Oxley and Chairman Bachus for
their leadership on this important issue and ask all my colleagues to
strongly support this legislation.
Mr. BACHUS. Mr. Speaker, I yield 1 minute to the gentleman from
Tennessee (Mr. Ford).
Mr. OSE. Mr. Speaker, I yield 1 minute as well to the gentleman from
Tennessee (Mr. Ford).
The SPEAKER pro tempore. The gentleman from Tennessee is recognized
for 2 minutes.
Mr. FORD. Mr. Speaker, there is nothing like bringing your colleagues
together. I appreciate both the gentleman from California (Mr. Ose) and
the gentleman from Alabama (Mr. Bachus) for yielding me this time, and
I thank my friend, the gentlewoman from California (Ms. Waters), and
certainly the ranking member, the gentleman from New York (Mr.
LaFalce), for all their hard work. I stand here in support of this
legislation and thankful the subcommittee decided to take up the issue
concerning the FDIC's treatment of loss reserves in its calculation of
its reserve ratio, Mr. Speaker. With that issue resolved, I think many
of us feel more comfortable in supporting this legislation.
I want to take this opportunity to discuss one final issue, and I
hope that at some point we can take this up. As enthusiastic as I am
about supporting the legislation, I am disappointed in one decision the
FDIC has made in recent weeks involving a proposed reorganization of
the regional office structure. In particular, the FDIC has proposed to
fold the Memphis regional office, which is in my district, and the
Boston regional office, which is represented by many of my colleagues
here in the Congress. The Memphis office would be folded into the
Dallas region and Boston into New York. I believe this proposed change
would lessen the FDIC's responsiveness to the concerns of financial
institutions presently within the region of the country in which I
live.
Moreover, it would not save much money at all. I think it is
estimated to save somewhere around $100,000 to $150,000, which is a
decent chunk of change, but when you consider the relationship that has
developed over the years between bankers in the Mississippi, Arkansas,
Kentucky, and Tennessee area, and then having to move that office to
Dallas, I do not think the benefits outweigh the cost to those in this
area of the country.
It is my hope that my colleagues in the New England area, as well as
in those 4 or 5 States covered in my region, can work together to
persuade Chairman Powell and those in the FDIC that this is not the
right move nor is it the right time to make this move.
With that, Mr. Speaker, I again wish to thank both the gentleman from
California (Mr. Ose) and the gentlemen from Alabama (Mr. Bachus), and
would close by saying that I do think this increase of $130,000 is
fair, though I hear some of the concerns being raised by the gentleman
from California.
And I might add, the University of Pennsylvania professor, I think I
had him when I was there. He did not give me a good grade, so he may
not be right all the time.
Mr. OSE. Mr. Speaker, I yield myself such time as I may consume, and
I want to go back, finally, to Dr. Thomas' 21 citations. Again, I am
not going to cite the remaining 18 or 19 of them, but I do want to run
through his testimony here.
Dr. Thomas raises the issue that ``There is absolutely no public
outcry over or even widespread interest in the proposal to,'' he says,
``double the FDIC insurance limit. Most people know or should know from
their banks that any couple can get multiple account coverage, and
singles need only open another account at any bank via a personal
visit, a telephone call, or even the Internet. There is no shortage of
$100,000 insured deposit investment opportunities. Some seniors may
have a preference to keep their jumbo CDs spread out among several
banks in $100,000 or less amounts, even if they have the opportunity to
keep $200,000 at one bank.''
This speaks directly to what the current situation is. The current
situation allows people to protect themselves under the current
$100,000 limit. The testimony we have had at the subcommittee from high
ranking government officials, from people in the business to academia,
is that increasing this limit significantly increases the risk to the
insurance funds.
[[Page H2802]]
Speaking from personal experience, I actually weathered the last time
we went through this. Many of my colleagues in the real estate business
did not. The fact of the matter is, it was a wholesale winnowing of the
real estate business in California and it took us years to recover. My
colleagues, increasing the deposit insurance coverage limit will lead
to a potential for repeating that.
California leads this country's economy up and down. If we increase
the risk to the insurance fund by placing on our bankers the
requirement to put more money to work in a quick or hasty fashion, we
are going to replay the nightmare of the early 1980s and pay billions
more the next time this occurs. This body does not need to fund
additional billion dollar bailouts.
I am in favor of 90 percent of this bill. There are good things in
this bill. But when we look at the hands of Lady Justice balancing, in
her case justice, in this case we are talking about the security and
sanctity of the economy and deposits across this country, if we look at
how that is balanced, in Lady Justice's case her hands are even. In the
case of today's bill, the increase in deposit insurance skews that
balance. We do not need to do this, my colleagues. This is unnecessary.
Unfortunately, I am forced to go against my chairman, and I ask my
colleagues to oppose this bill in its current form.
Mr. Speaker, how much time do I have remaining?
The SPEAKER pro tempore. The gentleman from California has 45 seconds
remaining.
Mr. OSE. Mr. Speaker, I yield the balance of my time to the gentleman
from Alabama (Mr. Bachus).
Mr. BACHUS. Mr. Speaker, I thank the gentleman for yielding me this
time, and let me just close by saying that there has been a rapid
insurance deposit growth. In other words, people are putting a lot of
money in accounts, in 2 or 3 financial institutions in this country,
which have gone out and bought multiple subsidiaries and are
advertising $500,000, $600,000, and $700,000 worth of coverage.
Now, where is that money coming from, those hundreds of millions of
dollars? It is coming from community banks in small towns and
mainstream banks. People ought to have an option not to put that money
in a Wall Street financial institution. A small business that has
$300,000 or $400,000 deposited, they ought to have the option of
putting that in their hometown bank.
We talk about $100,000. Yes, $10,000 may be the average account, but
there are a lot of small businesses in this country that maintain one
bank account in their local bank. They ought to have more coverage.
Mr. BENTSEN. Mr. Speaker, I rise today in strong support of H.R.
3717, the Federal Deposit Insurance Reform Act of 2002, legislation
that will reform our federal deposit insurance programs. As a member of
the Financial Services Committee, I am pleased that the House of
Representatives is now acting to consider this legislation.
H.R. 3717 would combine the Bank Insurance Fund (BIF) and the Savings
Association Insurance Fund (SAIF) into one insurance Fund. This
legislation would also permit the Federal Deposit Insurance Fund
greater flexibility in setting the designated reserve ratio (DRR).
Under current law, the BIF and SAIF have target DRR ratios of 1.25
percent. Today, both the BIF and SAIF have DRR levels which are higher
than this target rate with the DRR for BIF at 1.26 percent and the DRR
for SAIF at 1.37 percent. I believe another important part of this bill
would allow the FDIC to set the DRR between the range of 1.15 percent
to 1.4 percent in order to ensure that the new insurance fund is
counter cyclical and avoid sharp rate swings. When the insurance fund
is in distress under current law, it is likely that premiums would be
increased on those institutions which may be facing increased costs and
financial pressures. By charging premiums when institutions are
healthy, they will be better prepared to deal with any unforeseen
financial hardships.
Finally, this bill increases the maximum deposit insurance coverage
for an individual from $100,000 to $130,000. I believe that this higher
insurance coverage is long overdue. The deposit insurance coverage
limit has not been changed since 1980. I believe that this higher
coverage will help smaller financial institutions to compete for
customers. Another important provision in this bill would permit
consumers to get insurance coverage of $260,000 for their Individual
Retirement Accounts (IRAs). In this time when we are working to
encourage consumers to save for their futures, I believe that this
higher IRA coverage will ensure that consumers have several options for
where to keep their IRAs.
I am also pleased that this legislation includes a provision to
increase the number of ``lifeline'' accounts for underserved consumers.
This provision is based upon an amendment offered by Rep. Maxine Waters
(D-CA) to ensure that the underserved consumers have access to low-cost
accounts. Many poor elderly do not currently have checking accounts and
may be able to use this lifeline accounts to receive electronic
transfers of their social security and other direct deposits.
I urge my colleagues to support H.R. 3717, legislation to improve our
federal deposit insurance program.
Mrs. ROUKEMA. I rise in strong support of HR 3717, the Federal
Deposit Insurance Reform Act of 2002. This is an important bill and I
want to commend the Chairman Oxley of the Full Committee and Chairman
Bachus of the Subcommittee for pushing this bill forward. This is the
most opportune time for Congress to implement these changes--when the
industry is still strong and healthy.
There is no doubt that the passage of Gramm-Leach-Bliley created a
brave new financial world--with new challenges for the regulators and
our deposit insurance fund. This legislation makes adjustments that
will not only enhance the safety and soundness of the entire financial
service industry by preserving the value of insured deposits, advancing
the national priority of enhancing retirement savings for all
Americans, and ensuring that the value, benefit and cost of deposit
insurance is fair to consumers and institutions alike.
Many of the provisions in HR 3717 are provisions that I have long
supported. In fact, I introduced legislation including many of these
provisions in the last Congress. For example, HR 3717 mergers the two
insurance funds. Merging the funds will create a more stable,
actuarially strong insurance fund, and reduce the risk of fund
insolvency.
Second, the bill increases the standard maximum deposit insurance
limit from $100,000 to $130,000 and indexes future coverage limits to
inflation. The $100,000 coverage limit was set in 1980 and it is time
to increase that coverage for consumers. In addition, Federal Credit
Unions are provided with parity in general standard maximum deposit
insurance coverage, coverage for retirement accounts and municipal
deposits.
This bill provides double coverage limits for certain types of IRAs &
401(k)s--up to $260,000. Finally, this bill provides rebates requiring
that \1/2\ of the excess funds be returned to banks when the DRR is
above 1.35 percent, and all of the excess reserves when the DRR reaches
1.4 percent. With the current fund balances, much above the 1.2
designated reserve ratio, certainly this is appropriate.
This is important legislation that deserves our support. The Federal
Deposit Insurance Fund has served this Nation well for the last 68
years--public confidence and stability in the Nation's banking system
were preserved through one of the largest banking crises--the 1980
Savings and Loan crisis. HR 3717 makes the necessary changes that will
protect not only depositors but our financial system in times of
crisis.
Mr. PAUL. Mr. Speaker, H.R. 3717, the Federal Deposit Insurance
Reform Act, expands the federal government's unconstitutional control
over the financial services industry and raises taxes on all financial
institutions. Furthermore, this legislation could increase the
possibility of future bank failures. Therefore, I must oppose this
bill.
I primarily object to the provisions in H.R. 3717 which may increase
the premiums assessed on participating financial institutions. These
``premiums,'' which are actually taxes, are the premier sources of
funds for the Deposit Insurance Fund. This fund is used to bail out
banks who experience difficulties meeting their commitments to their
depositors. Thus, the deposit insurance system transfers liability for
poor management decisions from those who made the decisions, to their
competitors. This system punishes those financial institutions which
follow sound practices, as they are forced to absorb the losses of
their competitors. This also compounds the moral hazard problem created
whenever government socializes business losses.
In the event of a severe banking crisis, Congress will likely
transfer funds from the general revenue into the Deposit Insurance
Fund, which could make all taxpayers liable for the mistakes of a few.
Of course, such a bailout would require separate authorization from
Congress, but can anyone imagine Congress saying ``No'' to banking
lobbyists pleading for relief from the costs of bailing out their
weaker competitors?
Government subsidies lead to government control, as regulations are
imposed on the recipients of the subsidies in order to address the
moral hazard problem. This is certainly the case in banking, which is
one of the most
[[Page H2803]]
heavily regulated industries in America. However, as George Kaufman,
the John Smith Professor of Banking and Finance at Loyola University in
Chicago, and co-chair of the Shadow Financial Regulatory Committee,
pointed out in a study for the CATO Institutes, the FDIC's history of
poor management exacerbated the banking crisis of the eighties and
nineties. Professor Kaufman properly identifies a key reason for the
FDIC's poor track record in protecting individual depositors:
regulators have incentives to downplay or even cover-up problems in the
financial system such as banking facilities. Banking failures are black
marks on the regulators' records. In addition, regulators may be
subject to political pressure to delay imposing sanctions on failing
institutions, thus increasing the magnitude of the loss.
Immediately after a problem in the banking industry comes to light,
the media and Congress will inevitably blame it on regulators who were
``asleep at the switch.'' Yet, most politicians continue to believe
that giving the very regulators whose incompetence (or worst) either
caused or contributed to the problem will somehow prevent future
crises!
The presence of deposit insurance and government regulations removes
incentives for individuals to act on their own to protect their
deposits or even inquire as to the health of their financial
institutions. After all, why should individuals be concerned with the
health of their financial institutions when the federal government is
insuring banks following sound practices and has insured their
deposits?
Finally, I would remind my colleagues that the federal deposit
insurance program lacks constitutional authority. Congress' only
mandate in the area of money, and banking is to maintain the value of
the money. Unfortunately, Congress abdicated its responsibility over
monetary policy with the passage of the Federal Reserve Act of 1913,
which allows the federal government to erode the value of the currency
at the will of the central bank. Congress' embrace of fiat money is
directly responsible for the instability in the banking system that
created the justification for deposit insurance.
In conclusion, Mr. Speaker, H.R. 3717 imposes new taxes on financial
institutions, forces sound institutions to pay for the mistakes of
their reckless competitors, increases the chances of taxpayers being
forced to bail out unsound financial institutions, reduces individual
depositors' incentives to take action to protect their deposits, and
exceeds Congress's constitutional authority. I therefore urge my
colleagues to reject this bill. Instead of extending this federal
program, Congress should work to prevent the crises which justify
government programs like deposit insurance, by fulfilling our
constitutional responsibility to pursue sound monetary policies.
Mr. NEY. Mr. Speaker, I rise in support of H.R. 3717, the ``Federal
Deposit Insurance Reform Act of 2002.''
I want to commend my colleagues, Mike Oxley, the chairman of the
House Financial Services Committee and Spencer Bachus, the chairman of
the House Financial Institutes Subcommittee, for crafting sound
legislation to improve the federal deposit insurance system. This bill
will reform the FDIC so that it can continue to provide the stability
that Americans have depended on for years.
Last year, I introduced H.R. 1293, the ``Deposit Insurance
Stabilization Act.'' This bipartisan piece of legislation addressed
three of the most pressing needs of the deposit insurance system. My
legislation merged the Bank Insurance Fund and the Savings Association
Insurance Fund into a single sounder deposit insurance fund. My
legislation also eliminated the 23 basis point cliff facing FDIC-
insured institutions if the deposit insurance fund were required by law
to be recaptilized. I am pleased that both of these provisions are
included in the bill before us today.
My legislation included a third important component, commonly
referred to as the ``free rider'' provision. This provision would give
the FDIC statutory authority to assess a special premium on any insured
institution with excessive net deposit growth. It was drafted to
address the possible dilution of the deposit insurance fund by a
handful of institutions. It was not meant to serve as a penalty or
impediment to legitimate growth, but rather as an equitable to ensure
that the cost of doing the business of deposit insurance is borne by
those who benefit from that business.
I was pleased that the Ney free rider provision was included as part
of this bill, as reported by the Financial Services Committee. It
represented a good faith effort to fairly resolve a problem first
brought to my attention by bankers in my state and across the country.
Unfortunately, because of the controversy it generated, this
provision is not part of the managers' amendment before us today. While
other provisions of the managers' amendment address the free rider
problem, the absence of statutory authority for the FDIC to deal with
prospective free riding could remain a problem. I am anxious to work
with my colleagues in Congress and organizations like America's
Community Bankers to adequately address this problem as this bill moves
forward.
Again, I would like to commend the sponsors of this bill for
addressing the challenges facing the federal deposit insurance system,
and urge my colleagues to support this bill.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from Alabama (Mr. Bachus) that the House suspend the rules
and pass the bill, H.R. 3717, as amended.
The question was taken.
The SPEAKER pro tempore. In the opinion of the Chair, two-thirds of
those present have not voted in the affirmative.
Mr. BACHUS. Mr. Speaker, on that I demand the yeas and nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX and the
Chair's prior announcement, further proceedings on this motion will be
postponed.
____________________