To the Editor:

What does the Clinton administration have against state-chartered banks?

Every year for the past five years the administration has proposed a new "tax" on state-chartered banks and bank holding companies. This fee would be a grossly unfair "tax" on our nation's state banks and a threat to the viability of the dual banking system. The proposal has been defeated for good reason in the past and should be defeated this time also.

All banks, both state and national, already pay examination fees to their chartering authority. If state-chartered banks are required to pay an additional examination fee to federal bank regulatory agencies-over and above the fees they already pay to their state chartering authority-they will be placed at an unfair competitive disadvantage, because they would be paying two fees: a state examination fee and a federal examination fee.

National banks, supervised by the OCC, would have the distinct advantage in only paying a single assessment fee. To avoid the dual assessment, state-chartered banks would be motivated to convert to a national charter.

The FDIC and the Federal Reserve have had the authority to charge for their examinations since 1993, but recognizing the inequity of such an assessment, neither has done so. Both agencies are aware that banks are already subject to fees that support their operations.

All banks are subject to deposit insurance premiums which in part fund the operations of the FDIC, just as all banks are subject to reserve requirements with the Federal Reserve that do not earn interest but which help to fund Federal Reserve operations. There's no budgetary reason, small or large, for the proposed additional examination fee, as neither the FDIC nor the Federal Reserve needs the money.

Even after deducting the cost of operations, the Federal Reserve turns over a substantial surplus to the Treasury each year. In 1997 the Federal Reserve System transferred nearly $21 billion in surplus earnings to the Treasury.

Similarly, even after operation expenses have been accounted for, the two FDIC deposit insurance funds have grown well beyond the congressionally mandated reserve ratios. (And without the authority to rebated these sums, these funds will continue to grow).

During 1997 the Bank Insurance Fund had net income of $1.44 billion and grew to $28.3 billion, while the Savings Association Insurance Fund had net income of $480 million and grew to $9.4 billion. Meanwhile, the number of problem institutions continues to decline. Plainly put, there is absolutely no economic justification for imposing new fees on state-chartered banks.

Since 1863, both state and federal governments have issued bank charters and supervised financial institutions. This dual banking system has been a dynamic force for bank modernization. The ability of financial institutions to make a meaningful choice between the state and federal charter is an ongoing dynamic driving progress within our banking industry.

Fees are actually a good example of the impact this competition has on our nation's banking system. Over the past five years, the OCC has substantially reduced its assessments and application fees for national banks. Would the OCC have done so if a lower-cost competitor-the state charter-had not been available? If the administration's proposal passes and state banks automatically pay fees equivalent to the OCC's, will the comptroller be likely to lower fees again? Probably not.

The reductions in national banks fees are a perfect example of the good things that happen when government acts like a business, streamlines its operations, and prices itself accordingly. The administration's budget proposal would destroy this.

Because this "tax" would apply to state-chartered banks and to bank holding companies, but not to national banks, it would effectively punish financial institutions for not choosing the national bank charter.

Imposing a new federal fee on state-chartered banks and bank holding companies is simply not playing fair. Taxing banks and bank holding companies for making the choice that is their right-a choice that benefits us all-is shortsighted and bad public policy.

Kenneth A. Guenther

Executive vice president,Independent Bankers Association of America

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