WASHINGTON With federal regulators and the banking industry starting to agree on several core ideas for deposit insurance reform, the looming question remains which issues lawmakers will deal with or whether they will deal with any at all.
Last week the push for reform was already beginning. Federal Deposit Insurance Corp. Chairman Donna Tanoue provided a preview of what her agency would recommend by the end of the month, and two industry groups adopted similar platforms.
But industry sources warned that the tough work is just beginning. Edward L. Yingling, the lead lobbyist for the American Bankers Association, said in an interview Friday that top lawmakers are just not ready to deal with the issue immediately.
We know this is not going anywhere in the next month or two, because neither Sen. Phil Gramm nor Rep. Michael Oxley want to get into it right now, said Mr. Yingling, who said he had met with the chairman of the Senate and House Banking committees recently. There is a new Treasury Department, and a new chairman to be named to the FDIC, and Congress wont do anything until they are in a position to testify on this.
That does not mean anyone intends to give up, he added.
Mr. Yingling shared a list of reform ideas the group will start using this spring to persuade lawmakers of the need for changes. He is hopeful that a bill could be ready by the summer for Congress to consider.
First on the reform agenda convince lawmakers that the reform question goes beyond whether to raise coverage. Ever since Ms. Tanoue first suggested the possibility of doubling deposit insurance coverage to $200,000 per account a year ago, that issue has dominated the reform debate. Sen. Gramm has already voiced opposition to the idea, but Mr. Yingling stressed that there are several key issues that need to be stressed to Congress, including the rise of fast-growing institutions that are diluting the Bank Insurance Fund. He worried that if the industry focused only on coverage, no legislation will ever pass.
I would like to be able to go in and talk to Phil Gramm about an overall concept that deals with other issues, Mr. Yingling said. For example, everybody is interested in this fast-growing institutions problem. The bankers correctly said that they dont want to send their lobbyist in to see Phil Gramm and have the first thing he says is Im not going to do that and kick me out. We want to go in and talk about a package and see how much we can do in that area looking at the political realities and the costs.
Indeed, focusing on the political reality of the situation is a focus of the ABAs paper. Instead of continuing to endorse doubling coverage, the paper calls for the group to push for as much as is politically and economically viable. The paper also suggests new ideas that Mr. Yingling said could add to the viability of a plan, including pushing for Congress to increase coverage for long-term savings vehicles such as 401(k)s and IRAs.
This is a concept that from my perspective politically may have some legs in that 401(k) and IRA money is not likely to be the kind of money that somebody is trying to grow real fast and potentially could go belly up, he said. It doesnt move around the country like CDs do. That isnt the way people are going to treat their 401(k) and IRAs. This may be an angle that some of those in policy positions who are skeptical of increasing the coverage might be more interested in.
Other positions that the ABA paper endorsed are replacing the current ratio of $1.25 in federal reserves for every $100 of insured deposits with a more flexible target, instituting a mutual model where institutions are entitled to a refund if the deposit insurance funds exceed a certain level, and returning to a more independent FDIC board.
There are five positions on the board, including slots for the Comptroller of the Currency and the Director of the Office of Thrift Supervision. But Mr. Yingling said that frequently only four positions on the board are filled (as is the current case), and the two other agencies can effectively veto any decision by the FDIC representatives.
The argument here is that we should go back to a system which assures that the FDIC is independent, Mr. Yingling said.
Separately, the Independent Community Bankers of America endorsed many of the same recommendations at their annual conference in Las Vegas last week. The trade group formally agreed to push Congress to tie the coverage limit per account to inflation, charge rapidly growing institutions more in premiums, institute steady premiums for all institutions, and eliminate the hard target reserve ratio. Americas Community Bankers had already outlined and approved a similar agenda.