WASHINGTON - Taking strong exception to a senior U.S. Treasury official, House Banking Committee Chairman Jim Leach said the $25 billion in the bank insurance fund belongs to the industry and not Uncle Sam.
"The insurance fund is a trusteeship fund which can be used only to support problems in the financial structure of insured institutions," Rep. Leach, R-Iowa, said Monday. "It is not the property of the United States government to be used willy nilly for any other purpose."
Appearing at a forum sponsored by the Institute of International Bankers, Rep. Leach squared off against Treasury Under Secretary John D. Hawke Jr., who said the money in the Bank Insurance Fund "belongs to the government." "It's the accumulation of fees that have been paid to the government for the assumption of risks that the government has unwritten," Mr. Hawke said. "It is not a fund that belongs to bankers."
Mr. Hawke also said the fair market value of deposit insurance is greater than 7 cents per $100 of domestic deposits - well above the 4.5 cents the government is charging now.
But Rep. Leach contended that because the fund has reached its required ratio of reserves to domestic deposits, well-capitalized banks should not have to pay premiums.
"If prudent banking standards are maintained, income of the fund itself, without additional premiums, should be able to handle losses in the system and allow for fund growth," Rep. Leach said.
Rep. Leach also announced that the House is close to voting on legislation that would repeal the Glass-Steagall Act and reduce banks' regulatory burden.
"There is a definite possibility that next week the House will deal with Glass-Steagall," he said. "If it does, that should precipitate greater tension on the Senate side."
Rep. Leach said he hopes this tension will lead to a final bill by Christmas. "But I would be hesitant to handicap that," he added.
Mr. Hawke said the administration backs Glass-Steagall repeal, but he called the House version inefficient because it would require banking concerns to set up subsidiaries to conduct new securities activities.
Mr. Hawke also repeated his opposition to a moratorium on the Comptroller of the Currency's authority to expand bank insurance powers. Banking industry leaders also have come out against the moratorium, which could last five years.
In an interview later, Rep. Leach, clearly frustrated, said the moratorium is being misperceived.
"The government should still love this bill, as the banking industry should like this bill," he said. "The provision that includes the moratorium has some things that are very good for banks."
Rep. Leach explained that the moratorium would change the way the Comptroller evaluates what products and services a bank may offer. Under current law, the agency must find an activity that is "incidental to banking." Under the House bill, that phrase would be changed to "part of banking." In the interview, Rep. Leach said selling insurance is "part of traditional banking."
What the insurance agents fear, according to Rep. Leach, is the Comptroller permitting banks to underwrite insurance - something Congress has specifically not authorized for banks.
"The language in the moratorium is a fractional rewrite of current law," Rep. Leach insisted. "It's a modest restriction on the Comptroller offering new empowerments."
Mr. Hawke opened the door to compromise by saying the administration could support a moratorium designed to work as a transition.
He suggested placing a short-term moratorium on banks expanding into the insurance market while allowing banks to buy existing insurance agencies.
"At least that kind of approach would allow progress," Mr. Hawke said.
Rep. Leach did not take the bait. He insisted that the bill pending in the House is the best deal the banking industry is going to get.
"No bank likes this language," he said. "I don't like it either, but ... the quid pro quo is that no other amendments be offered on the floor on insurance."
The amendments being blocked, he said, have "an excellent chance of prevailing" and "would likely be much, much, much more" detrimental to banks.
"So this is a compromise which has the effect of allowing a bill to go forward in a credible way," Rep. Leach said.
Rep. Leach said the controversial "Baker amendment" could resurface when the Senate considers the bill. That amendment, broadly supported by the industry, would allow banks to affiliate with insurance companies in most states.
Separately on Sunday, the board of the Independent Bankers Association of America voted unanimously to support Rep. Leach's Glass-Steagall- regulatory relief package.
