[Congressional Record (Bound Edition), Volume 147 (2001), Part 4]
[Extensions of Remarks]
[Page 5396]
[From the U.S. Government Publishing Office, www.gpo.gov]



     INTRODUCTION OF THE DEPOSIT INSURANCE FUNDS MERGER ACT OF 2001

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                         Tuesday, April 3, 2001

  Mr. LaFALCE. Mr. Speaker, today I introduce legislation that merges 
the FDIC's Bank Insurance Fund (BIF) and the Savings Association 
Insurance Fund (SAIF) on January 1, 2002. I am joined by Representative 
Maxine Waters as an original cosponsor. A merger of the BIF and SAIF 
would clearly benefit the deposit insurance system by creating a 
single, more diversified fund that is less vulnerable to regional 
economic problems.
  In addition, a merger of the funds would more accurately reflect the 
reality of today's financial services industry, in which over 40 
percent of the SAIF deposits are held by commercial banks and FDIC-
regulated state savings banks. In fact, the funds have lost their 
independent identities, and we should rationalize their structure.
  Today, BIF members and SAIF members pay deposit insurance premiums at 
the same rate. However, until the SAIF was recapitalized in 1996, the 
FDIC was required to charge different premiums to BIF and SAIF members 
for what is essentially the same product. A difference in premiums 
could emerge once again, if the reserves of one fund drop below the 
statutory reserve ratio of 1.25% (that is, a fund's reserves must have 
at least $1.25 for every $100 of deposits insured by the fund), and the 
reserves of the other fund do not. A merger would prevent the re-
emergence of a rate disparity between BIF members and SAIF members and 
the market inefficiencies the disparity creates as institutions waste 
time and money in order to purchase deposit insurance at the lowest 
price possible.
  This is an optimal time for merging the two funds. The ratio of the 
SAIF fund balance to insured deposits is at a healthy 1.44%. The BIF 
also remains strong at a healthy 1.35% ratio of reserves to insured 
deposits. A combined fund would have a reserve ratio of 1.37%. Under 
these conditions, industry concerns over competitive disadvantages 
caused by a merger should be minimal. Both the banking and thrift 
industries should support the change as bringing needed rationality and 
stability to the deposit insurance funds.
  Other deposit insurance reform proposals have been introduced that 
address other issues, such as the proper level of deposit insurance 
coverage and automatic industrywide assessments, when either the BIF or 
SAIF falls below the 1.25% reserve ratio. While these other proposals 
merit serious consideration, Congress may not yet be prepared to 
resolve the issues they address. However, the case for legislation 
merging the BIF and SAIF is clear and should not get bogged down in the 
more general debate on deposit insurance reform. Mr. Speaker, the 
merger of the BIF and SAIF is a matter of substantial public policy 
importance that should be addressed on its independent merits, and 
without delay.

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