When the top officials of the national banking regulatory agencies speak at an Independent Community Bankers of America national convention, they never receive a standing ovation. (The exception is Fed Chairman Alan Greenspan, who is perceived as the nation's treasurer, not as a regulator.)
But FDIC Chairman Donna Tanoue broke the pattern March 7 with her bold and public-spirited address calling for the strengthening and modernization of the FDIC. The speech began with a reaffirmation of the importance of the FDIC and federal deposit insurance to this nation's extraordinary financial stability. Chairman Tanoue stated that the $100,000 individual limit isn't what it was in 1980 - that if this coverage had been indexed to inflation, it would now be at $197,000.
She also noted that the FDIC has not raised the coverage limit in 20 years, the longest such period in its history. It was her hypothesis that "raising the coverage limit to $200,000 may not substantially elevate the risk of exposure of the funds."
Community bankers have not been growing their competitive core deposits. The figures speak for themselves.
The just-released FDIC first-quarter earnings report for banks dramatically underscores the developing trend for all FDIC-insured institutions - the share of commercial banks' assets funded by deposits fell for the eighth time in the last nine quarters, to 72.4%. At the same time net loans and leases to deposits showed a steady trend upward, reaching 75.6% at the end of 1999.
Core deposits are relatively stable, competitive, and low-cost. Community banks cannot buy funds in the money markets, unlike larger banks, which have the ongoing subsidy of being perceived as "too big to fail."
Chairman Tanoue had her finger on the right button. The ability of community financial institutions to attract and hold core deposits - which benefits their customer base and the communities they serve - is directly tied to federal deposit insurance and levels of coverage.
The response from community bankers was swift. "It is now our obligation as community bankers to make the economic and political case for this necessary change," then-ICBA president Bob Barsness told the convention. "I urge all of you to join with us to make this change a reality,"
There has been remarkable progress since Chairman Tanoue's speech.
Chairman Tanoue hosted a Roundtable Discussion in April on deposit insurance reform issues. The appropriate level of deposit insurance coverage was one of three key issues discussed.
Significantly, at this forum the American Bankers Association and the powerful AARP joined with the ICBA in advocating increased coverage. The AARP signaled its support for increasing coverage, in part, because of the effect inflation has had on the level of coverage. The issue is also on the radar screen of the Credit Union National Association.
Events on the Hill have also been encouraging:
- Rep. Joel Hefley, R-Colo., introduced legislation on March 16 to adjust the existing individual limit for inflation and to provide periodic cost of living adjustments. The Hefley bill, HR 4467, now has 22 cosponsors, representing both parties.
- The same day the Hefley bill was introduced, Marge Roukema, R-N.J., the powerful chairwoman of the House Banking financial institutions subcommittee, announced that she was drafting legislation to increase the individual limit to as much as $200,000. "The $100,000 limit hasn't been adjusted in 20 years," Rep. Roukema said. "It is time to raise the ceiling again to reflect today's levels of income."
- Two days later Sen. Tim Johnson, D-S.D., a member of the Senate Banking Committee, introduced legislation whose wording paralleled that of the Hefley bill. The senator noted that his bill "will allow the FDIC to better meet the needs of consumers over the long term" and "ensure that rural consumers have the opportunity to invest their money in rural banks and not be forced to invest their money elsewhere."
- The Johnson bill, S 2589, also found prompt bipartisan co-sponsorship with Sen. Chuck Hagel, R-Neb., who is also a member of the Senate Banking Committee. Other cosponsors are Sens. Kent Conrad, D-N.D.; Robert Torricelli, D-N.J.; Russell Feingold, D-Wis.; and Bob Kerrey, D-Neb.
- On June 15, House Banking Committee member Tom Campbell, R-Calif., introduced a bill very similar to the Hefley and Johnson bills. Rep. Henry Gonzalez, D-Tex., has introduced legislation calling for a study of the issue. The ICBA asked both presidential candidates to state their position on this key issue, and subsequently discussed the matter with Vice President Gore.
Are there bears in the increasing-FDIC-coverage-levels berry patch? Of course - there always have been. Senate Banking Committee Chairman Phil Gramm, R-Tex., is on record in strong opposition to any increase.We ask that he reconsider his position, to help ensure the future of our diversified financial system and future funding for Main Street America. There is no state where community banks play a more important role than in Texas.
Will this important legislation move this year? No. The clock has run out on new legislative initiatives in this Congress. But Chairman Tanoue soon will be coming forward with her recommendations.
And the growing level of support on the Hill built since March is very encouraging. It will provide a springboard for efforts in the next Congress.
Mr. Guenther is executive vice president of the Independent Community Bankers of America