Financial reform legislation would require the government to spend $106 million more per year to supervise the financial services industry, according to a congressional estimate released Thursday.
Hardest hit would be the Federal Deposit Insurance Corp., the Federal Reserve Board and the Securities and Exchange Commission, the Congressional Budget Office said.
The bill also would generate about $17 million in additional revenue during the next five years. Most of the funds would come from new registration fees. In addition, the Treasury Department would be off the hook for $44 million a year in Resolution Funding Corp. bond payments.
That creates a $45 million budget shortfall that must be covered before the legislation is enacted. Many congressional observers expect that lawmakers will attach the plan to an unrelated measure that cuts government spending.
"The problem is not insurmountable," said a staff member for House Banking Committee Chairman Jim Leach.
The CBO estimates were based on the modernization bill that the House Banking Committee adopted in June. Although the Commerce Committee this week has proposed signficant changes to that bill, congressional observers said the CBO estimate remains valid.
The FDIC will face added costs of about $2 million in 1998 and $18 million annually after that to supervise thrifts that convert to state- chartered banks and do not decide to join the Federal Reserve system, the CBO said.
The CBO estimated that the Fed would need to spend about $4 million extra per year to supervise financial services holding companies that buy banks and to regulate wholesale financial institutions, or "woofies," which would be authorized by the bill.
The Fed also would need to spend $500,000 annually for added enforcement of consumer protection and fair-housing rules, the CBO said.
The Securities and Exchange Commission is expected to spend up to $3 million annually to monitor bank securities operations, the agency said.
The CBO predicted the General Accounting Office, the congressional watchdog agency, would spend $1 million annually to evaluate competition in the financial services industry.
The cost of merging the Office of the Comptroller of the Currency and the Office of Thrift Supervision, which would be required under the legislation, would be $15 million, the CBO said. Most of the funds would cover employee training, severance pay, and penalties for canceled leases.
The CBO predicted that banks and other private-sector institutions would incur only modest costs. For instance, national banks would spend less than $11 million to adapt to the new rules, and the thrift industry would spend $14 million.
The biggest private-sector cost would be borne by the 12 Federal Home Loan banks. These institutions would be saddled with the $44 million in bond payments for which the Treasury would no longer be responsible. The legislation would replace the current fixed-payment formula with one that allows an additional assessment to cover the minimum bond payment.