[Congressional Record Volume 155, Number 45 (Monday, March 16, 2009)]
[Extensions of Remarks]
[Pages E677-E678]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 STRONG OPPOSITION TO THE FDIC'S SPECIAL ASSESSMENT ON COMMUNITY BANKS 
    AND THE NEGATIVE IMPACT IT WILL HAVE ON THESE INSTITUTIONS, THE 
   COMMUNITIES THEY SERVE, SMALL BUSINESSES, COMMUNITY-BASED GROUPS, 
              FAITH-BASED GROUPS, AND CESAR CHAVEZ GROUPS

                                 ______
                                 

                          HON. RUBEN HINOJOSA

                                of texas

                    in the house of representatives

                         Monday, March 16, 2009

  Mr. HINOJOSA. Madam Speaker, over the years, Texas community banks 
have provided the loans and services to small businesses and others, 
which have helped me help my district. Together, the community banks, 
the credit unions, the chambers of commerce, the mayors, the Texas 
Senate and House, the Public Housing Authorities, the CDCs, and many 
more in the Rio Grande Valley helped me reduce the unemployment rate in 
my district from 23 percent when I first arrived in Congress all the 
way down to 6 percent, which has increased to 9 percent in January 
2009.
  I want to impress upon you the need for all of us on this Committee, 
the House of Representatives, the Congress in general and the Executive 
branch to keep in mind the importance of community banks. It is a 
small--but vital--sector in the overall health of our economy. 
Community banks foster economic growth and serve their communities, 
boost small businesses, and help increase individual savings, which is 
of particular importance to me as Co-Founder and Co-Chair of the 
Financial and Economic Literacy Caucus.
  While community banks are not the cause of the current crisis, they 
are feeling its effects. Commercial banks and savings institutions 
insured by the Federal Deposit Insurance Corporation (FDIC) reported a 
net loss of $26.2 billion in the fourth quarter of 2008.
  However, more than two-thirds of all insured institutions were 
profitable in the fourth quarter of 2008, including community banks. 
``Unfortunately, their earnings were outweighed by large losses at a 
number of big banks'', as stated by the FDIC in their Quarterly Banking 
Report.
  Total deposits increased by $307.9 billion (3.5 percent), the largest 
percentage increase in 10 years, with deposits in domestic offices 
registering a $274.1 billion (3.8 percent) increase. And at year-end, 
nearly 98 percent of all insured institutions, representing almost 99 
percent of industry assets, met or exceeded the highest regulatory 
capital standards.
  I agree with a statement made by Chairman Sheila Bair that, and I 
quote, ``public confidence in the banking system and deposit insurance 
is demonstrated by the increase in domestic deposits during the fourth 
quarter. Clearly, people see an FDIC-insured account as a safe haven 
for their money in difficult times.''
  Higher level of losses for actual and anticipated failures caused the 
FDIC Deposit Insurance Fund balance to decline during the fourth 
quarter of 2008 by $16 billion, to $19 billion (unaudited) at December 
31. In addition to having $19 billion available in the fund, $22 
billion has been set aside for estimated losses on failures anticipated 
in 2009. The fund reserve ratio declined from 0.76 percent at September 
30, 2008, to 0.40 percent in the last quarter of 2008. The statutory 
``targeted'' reserve ratio for the FDIC fund is 1.15 percent.
  When the FDIC Board recently met to address DIF' s fund reserve 
ratio, they decided to increase deposit insurance assessment rates 
beginning in the second quarter of 2009 and to consider adopting 
enhancements to the risk-based premium system.
  I must admit that I was surprised and concerned when I read the 
FDIC's press release announcing that the FDIC Board adopted an interim 
rule to impose a 20 basis point ``emergency special assessment'' on the 
industry on June 30, 2009. The assessment is to be collected on 
September 30, 2009. The interim rule would also permit the Board to 
impose an additional emergency special assessment after June 30, 2009, 
of up to 10 basis points if they deem it necessary to maintain public 
confidence in federal deposit insurance.
  The FDIC merged the Bank Insurance Fund (BIF) and the Savings 
Association Insurance Fund (SAW) to form the Deposit Insurance Fund 
(DIE) on March 31, 2006 in accordance with the Federal Deposit 
Insurance Reform Act of 2005. As a result of the merger of the BIF and 
SAW, all insured institutions are subject to the same assessment rate 
schedule, but not necessarily the same assessment rate.
  What is key here is the amount each institution is assessed is based 
upon statutory factors that include the balance of insured deposits as 
well as the degree of risk the institution poses to the insurance fund. 
Community banks do not pose a risk to the solvency of the Deposit 
Insurance Fund and its Designated Reserve Ratio and were not a party to 
the activities that led to such a low DIF ratio to the best of my 
knowledge.
  The FDIC has a $30 billion line of credit with the Treasury 
Department to meet its obligations. I am not opposed to the FDIC 
tapping that source. Our nation is in a severe economic crisis, and the 
FDIC plays a pivotal role in the financial system. We need to provide 
Chairman Bair and the Board with as much support as possible while 
simultaneously avoiding imposing unnecessary and unwarranted special 
assessments on financial institutions that had nothing to do with the 
current economic crisis or the condition of the overall banking 
industry.

  The FDIC's Deposit Insurance Fund currently has $19 billion 
available, $20 (you indicate $22B earlier) billion set-aside for 
estimated losses on failures anticipated in 2009, and a $30 billion 
line of credit with the Department of Treasury, bringing the total 
``available'' to $69 billion.
  Legislation that recently passed the House and is being considered in 
the Senate included a $70 billion increase in the FDIC's line of credit 
at Treasury to $100 billion, more than three-fold, and was 
intentionally capped at $100 billion during a markup, bringing the 
total dollar amount available for the Deposit Insurance Fund to 
$139($141?) billion, provided the legislation passes and is signed by 
the President.
  Although very pleased to learn that Chairman Bair would cut the 
emergency special assessment in half, to 10 basis points, provided 
Congress increases the FDIC's borrowing authority to $100 billion, a 
quid pro quo, I remain

[[Page E678]]

steadfast in my opposition to any special assessment that would be 
imposed on community banks.
  Community banks did not cause the economic crisis. To the best of my 
knowledge, community banks do not pose a threat to the Deposit 
Insurance Fund or its Designated Reserve Ratio. Community banks did 
what they always do, they took care of their communities, small 
businesses, faith-based groups, community-based groups, nonprofits, 
Cesar Chavez entities and many, many others.
  Under the restoration plan approved last October, the FDIC Board set 
a rate schedule to raise the DIF reserve ratio to 1.15 percent within 
five years. Recent actions taken by the FDIC extends the restoration 
plan horizon to seven years in recognition of the current significant 
strains on banks and the financial system and the likelihood of a 
severe recession.
  I agree with FDIC Chairman Sheila Bair's statement in the release 
that, and I quote, ``Public confidence in the FDIC guarantee has helped 
assure a stable source of funding for banks in these troubled times.'' 
However, I am curious as to why community banks that played little to 
no role in the current financial crisis will have to pay a special 
assessment for something they did not do. I understand the argument 
that it's best to impose the assessment on all the insured institutions 
across the board. But, it is flawed. And, I'll ask one more time why 
should community banks that had little to nothing to do with the 
current crisis have to pay the special assessment?
  They are small institutions that are well-capitalized whose funds are 
needed by local communities. Only thirteen out of 640 community banks 
in Texas have opted to participate in Treasury's Capital Purchase 
Program, and none of them are based out of my district.
  As noted, the Full Committee and subsequently the House of 
Representatives passed legislation authorizing the FDIC to borrow up to 
$100 billion from Treasury. Recently, Senate Banking Committee Chairman 
Christopher Dodd introduced legislation that would give the FDIC's 
Board of Directors, the Board of Governors of the Federal Reserve 
System and the Secretary of the Treasury, in consultation with the 
President, the power to increase the FDIC's borrowing authority above 
the $100 billion cap to an amount they deem necessary to maintain the 
stability and designated reserve ratio of the FDIC's Deposit Insurance 
Fund, but not to exceed $500 billion. This borrowing authority would 
sunset on December 31, 2010.
  I support Chairman Dodd's legislation--both its intent and its 
language--in large part due to the strict requirements it imposes on 
the FDIC, the Federal Reserve, and Treasury (in consultation with the 
President) prior to granting the authority for the FDIC to borrow 
beyond the proposed $100 billion threshold as capped in the House-
passed version of the legislation. It is sound public policy.
  At the same time, with all the funds the FDIC currently has available 
and the additional borrowing authority it likely will have soon, I 
don't believe it needs to tap the community banks in my district, in 
Texas and the United States.
  I have the utmost respect and confidence in Chairman Bair. I laud her 
for her commitment to financial literacy, especially her efforts to 
bring the unbanked into the mainstream financial system and away from 
check cashers, and payday and predatory lenders. I acknowledge and 
commend her and the FDIC Board for all their efforts and success at 
addressing the current economic crisis, up to a point.
  The FDIC's proposed emergency special assessment will not only 
negatively impact community banks, but it will not help me in my 
capacity as Co-Chair of the Financial and Economic Literacy Caucus. It 
will not help me as a member of the Financial Services Committee. It 
definitely will not help me, a representative of the poorest county in 
the country, to bring the unbanked into the mainstream financial 
system.
  There are alternatives to what the FDIC is proposing. If the FDIC 
needs additional funds to meet the designated reserve ratio, it can 
easily change the assessment base from domestic deposits to all 
deposits. The FDIC could tap temporary funding from the Treasury, like 
Wall Street firms, to re-capitalize the insurance fund, giving Main 
Street banks time to strengthen their balance sheets and allow local 
lending activities to continue, and grow, to help our struggling 
economy recover, rather than constrict lending further by imposing a 
new debt obligation on already burdened balance sheets.
  I cannot support a policy in which a federal agency takes funds from 
my district, which includes Hidalgo County--the poorest county in the 
country--and transfers them to the limited areas of the country in 
which the large banks and entities other than community banks or credit 
unions, with the help of certain regulators, created the current global 
economic crisis.
  Madam Speaker, I hope that someone out there is listening.

                          ____________________