Banks Applaud Introduction of Deposit Insurance Reform Bill in Senate

WASHINGTON-Senators Michael Enzi (R-Wyo.) and Tim Johnson (D-S.D.) introduced deposit insurance reform legislation July 29, which some are calling the best shot the legislation has had at becoming law in several years. The Federal Deposit Insurance Reform Act of 2005 (S. 1562) does not include the coverage increase to $130,000 in the House bill, but does index coverage to inflation, increases coverage for retirement and municipal accounts, merges the Bank Insurance and Savings Association Insurance Funds, and stabilizes premiums. The BIF has the potential of aggravating the reserves trigger soon, instigating a premium assessment, if the legislation does not go through, providing an additional impetus to passing the bill. FDIC staff has estimated the reserve ratio at 1.26% at year-end, just above the 1.25% that can trigger a steep premium, according to FDIC's Web site (http://www.fdic.gov/deposit/insurance/risk/2005_02/Bif_2005_02.html). "One of the most important changes the bill makes is giving banks that have capitalized the fund credit for their past payments," American Bankers Association President and CEO Edward Yingling said. "It also puts a cap on the fund so that, at some point in the future, too much money won't accumulate in Washington when it can be put to better use in America's communities. And by indexing the nation's deposit insurance levels for inflation, we are ensuring that the insurance policy that covers our customers' deposits holds its value over time. Furthermore, by raising coverage for retirement accounts, the bill offers additional security for current and near-term retirees." ICBA, too, welcomed the introduction of the bill. "The strength of our nation is our local communities, and this legislation will help keep more deposits in our local communities working for its citizens," ICBA Chairman David E. Hayes, president of Security Bank in Dyersburg, Tenn. said. "While there may be parts of the bill that need to be reviewed and discussed," America's community Bankers Executive Vice President and Managing Director of Government Relations Robert Davis commented, "the importance of today's action cannot be overlooked. We are making progress toward real deposit insurance reform and there is both consensus and momentum to get it done." Credit union trade associations are following the legislation closely but have said it is not of great importance to most credit unions so long as the National Credit Union Share Insurance Fund receives parity in insurance coverage, which is currently in the bill. NAFCU President and CEO Fred Becker said that some members have expressed an interest in increasing deposit insurance coverage for retirement accounts, but not the overall limits. CUNA Vice President of Legislative Affairs and Senior Legislative Counsel Gary Kohn said the legislation as introduced "is significant because it's a scaled-back version of previous Senate Banking bills." Senate Banking Committee Chairman Richard Shelby (R-Ala.) had opposed an increase in coverage, but the compromise measure might do the trick. Kohn said "many people" think this could pave the way to passage later this year or early next year. However, NAFCU Director of Legislative Affairs Brad Thaler said the big sticking point still could be the coverage level because the House version of the bill raises the funding level to $130,000 and indexes from there. Still, he said, it has a "decent shot" of becoming law this Congress. If it does, NCUA Director of Governmental and Congressional Affairs Cliff Northup said the agency does not foresee any operational changes for itself at this time, but credit unions would have to adjust their 1% deposits. -scooke@cutimes.com