WASHINGTON -- Community bankers are saying they would be hurt by a Clinton administration proposal to give the Federal Deposit Insurance Corp. preference over uninsured depositors when dividing the assets of failed banks.
The proposal, aimed at reducing the budget deficit, would ensure that the amount of customer's deposits in excess of $100,000 at small banks would be wiped out, said Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America. Consumers, he said, would still perceive large institutions as "too big to fail" safe havens.
The Senate Banking Committee was expected to join its House counterpart in voting to meet part of the deficit reduction goals by seizing a share of the surplus maintained by the Federal Reserve.
Fighting for Fed Surplus
In a letter to Senate Banking Committee Chairman Donald W. Riegle Jr. on Wednesday, Treasury Under Secretary Frank Newman and Associate Budget Director Christopher Edley said the Fed needs the surplus to absorb losses on volatile foreign exchange transactions.
They wrote that proposal could make Fed membership more costly, as the central bank might require members to purchase additional capital stock.
Instead, the administration said the FDIC's claims against assets of failed institutions should make precedence over all except insured depositors'.
The House Banking Committee previously voted to meet deficit reduction targets by seizing the Fed surplus and giving the FDIC and all depositors preference over other creditors.