Deposit insurance reform has mixed industry support

Northwestern Financial Review, Mar 1, 2002

Federal deposit insurance reform has hit the ground running in the U.S. Congress. A contentious issue in the banking industry, Rep. Spencer Bachus' (R-Ala.) "FDIC Reform Act of 2000," which is supported by House Financial Services Committee Chairman Mike Oxley (R-Ohio), is gaining some industry support.

The bill would raise coverage to $130,000 per account from $100,000 and adjust it for inflation every 10 years starting in 2010. In addition to coverage increases, the measure would merge the Bank Insurance Fund and Savings Association Insurance Fund, raise coverage to $260,000 for Individual Retirement Accounts and allow the FDIC to start charging deposit insurance premiums again on all institutions.

The Treasury Department and Federal Reserve Board both have an ongoing opposition to raising coverage levels. The American Bankers Association objects to all banks paying premiums again.

Other industry groups are more receptive. In a press release, Independent Community Bankers ofAmerica President Kenneth Guenther, said "The [FDIC] is the foundation of consumer confidence in our banking system," and that the bill "strengthens this foundation to the benefit of all Americans."

Guenther called the bill an opportunity for banks to grow their deposits, which trickle down to job-creating loans. "Bankers are willing to pay small and steady premiums for fair, equitable and substantially increased coverage levels. The comprehensive Bachus bill strengthens our diversified financial system."

America's Community Bankers, a trade group, has announced several times in the past it's desire to see many of the changes proposed in the bill. The FDIC itself is pleased with the bill.

"I praise the leadership of Chairmen Oxley and Bachus," said Don Powell, FDIC Chairman. "We appreciate Congress' leadership in recognizing the problems and their aggressive schedule to move forward with legislation."