Panel Backs Incentives for Serving Poor
WASHINGTON -- After rejecting a proposal to force banks to provide services to the poor, the House Banking Committee on Tuesday voted to give institutions financial incentives to offer low-cost accounts and lend money in impoverished communities.
Taking a surprise turn on the so-called lifeline issue, the committee added to the Bush administration's reform bill an amendment that would cut deposit insurance premiums in half for banks that offer basic checking accounts to the poor.
The measure, sponsored by Rep. Thomas Ridge, R-Pa. and passed by 37 to 11, would provide additional credits to banks making loans in communities where at least 30% of residents have incomes below the poverty line.
Also on Tuesday, the committee indicated its support for interstate banking by rejecting an amendment from Rep. Bruce Vento, D-Minn. Defeated 35 to 25, the amendment would allow a bank to branch into a new state only after the state expressly permits it. Opponents said the provision would have gutted the bill's interstate banking section.
The Ridge amendment would assess banks offering lifeline accounts an insurance premium 11.5 cents on each $100 of deposits, instead of the 23-cent rate that takes effect for commercial banks next week. (Thrifts already pay 23 cents per $100.) An institution with $1 billion in insured deposits would pay $1.15 million in annual premiums instead of $2.3 million.
Limits on Benefits
Also under the Ridge amendment, a bank that extends $100 million in new loans to distressed areas, as defined by a new Community Enterprise Board, would be eligible for a credit against its insurance premium of $5 million -- 5% of the loan amount. The total credit could not exceed 20% of the bank's total assessment, however.
Mr. Ridge said if the lending provision generated $1 billion for low-income communities across the country, it would cost the insurance fund no more than $50 million.
As it resumed work Tuesday on the Bush administration's bill, the committee also rejected a measure that would have imposed a two-year freeze on fees for accounts with balances of under $1,000.
The fee-freeze amendment, sponsored by Rep. Maxine Waters, D-Calif., was intended to ensure that banks do not raise fees on low- and moderate-income customers to offset the rising premiums needed to recapitalize the Bank Insurance Fund.
In taking up the issue of bank services for the poor, a number of committee Democrats argued that the potential for a taxpayer bailout of the bank fund gives Congress the right to demand more services for low-income people.
Rep. Barney Frank, D-Mass., carried that argument a step further, saying the use of Treasury borrowing to recapitalize the insurance fund was sufficient justification for the new requirements.
Committee Republicans, joined by a handful of Democrats, responded that some amendments aimed at helping the poor would load new costs on banks and make a taxpayer bailout more likely.
"Who are the people we are trying to protect?" asked Rep. Toby Roth, D-Wis. "We are trying to protect taxpayers from a bailout, and this amendment goes in the opposite direction."
Metzenbaum Leads Cause
Although the mandated-services amendments were defeated, they are expected to come up again, in the Senate if not on the House floor. Sen. Howard Metzenbaum, D-Ohio, has been a relentless advocate of lifeline checking accounts and mandatory cashing of government checks.
A shift in sentiment on the two amendments, which were sponsored by Rep. Joseph P. Kennedy 2d, D-Mass., was evident in the committee votes. When the panel's financial institutions subcommittee considered similar measures last month, they were defeated 27 to 9. On Tuesday, the full committee rejected lifeline checking by only 29 to 23, and turned down Rep. Kennedy's government-check-cashing amendment by 30 to 22.
Edward L. Yingling, director of government relations for the American Bankers Association, blamed the Independent Bankers Association of America, which had flirted with the idea of endorsing the Kennedy amendments, for the tight margins.