WASHINGTON In a letter to the members of the House Financial Services Committee last week, American Bankers Association president Donald R. Mengedoth urged lawmakers not to increase the number of banks that must pay deposit insurance premiums, arguing that banks have in effect prepaid for coverage.
He said testimony by the Federal Reserve Board and the Treasury Department in hearings last month on deposit insurance reform was misleading. Both the Treasury and the Federal Reserve testified, in essence, that many banks receive deposit insurance coverage for free, Mr. Mengedoth wrote. The ABA believes this characterization ignores the history of the deposit insurance funds and the congressional debates that led to the current system.
The $42 billion in the FDIC funds did not magically appear, but was a result of significant sacrifices that banks and savings institutions made, Mr. Mengedoth wrote. Perhaps most importantly, the entire capital of the banking industry stands behind the FDIC funds.
Simply put, the letter concluded, the current zero premium system for top-rated banks (except for those that grow at rates well above the norm) should be preserved as long as the insurance funds meet the statutory 1.25% ratio of reserves to insured deposits.