WASHINGTON -- The House Banking Committee yesterday approved an amendment to bank reform legislation that would give banks that do business in distressed areas a discount on premiums they pay for deposit insurance.
The move could hamper efforts to recapitalize the ailing Federal Deposit Insurance Corp., whose troubles the committee is trying to address while it works on changing the way banks and securities firms do business.
The committee, on a 37-to-11 vote, approved an amendment that would give banks a break on their premiums if they make loans, and increase banking services, in financially distressed neighborhoods.
Under the legislation being considered by the committee, the Federal Deposit Insurance Corp. would be authorized to borrow up to $30 billion from the Treasury Department. The borrowing would be paid back through higher premium assessments on insured banks.
Alternatively, the panel last week voted to allow the FDIC, at its discretion, to instead borrow the money by issuing bonds. Under that scenario, principal and interest would likewise be paid for by higher premium assessments on banks.
Providing the amendment's premium discounts could reduce the amount of money available for recapitalizing the insurance fund. That could bring on the taxpayer bailout lawmakers want to avoid.
The committee's vote on the amendment came after the panel rejected two amendments by Rep. Joseph P. Kennedy 2d, D-Mass., that would have required banks to increase services to the poor.
The Kennedy amendments -- one to require banks to offer basic accounts to low-income consumers, the other to require banks to cash government checks -- were rejected as too costly for banks.
The discounts amendment was billed as a way of encouraging banks to perform the kinds of services the Kennedy amendments would have mandated. Had the Kennedy amendments been approved, the banking industry likely would have mobilized against passage of the bill.
The issue could resurface as the bill makes its way through Congress, and a number of committee members have expressed discomfort with the idea of trying to placate the banking industry at a time when lawmakers are being asked to recapitalize the deposit insurance fund.
Rep. Bernie Sanders, a nonparty socialist from Vermont, said, "Many members have complained about the burdens and costs of some of these proposals to banks.
"Well, some of us weren't elected by banks," he said. "We were elected by working people who are being called on to foot the bill for the irresponsible practices of bankers."
In other developments yesterday, the committee voted 35 to 15 against an amendment offered by Rep. Bruce Vento, D-Minn., that would have allowed states a greater say about interstate banking. Such banking is a cornerstone of the Bush administration's plan to reform the banking system, and the amendment was considered a key test of the panel's willingness to move forward on a comprehensive overhaul.
Later in the week, the committee will consider provisions of the plan dealing with bank securities activities.