To the Editor:

The letters from Jim Culberson, Tony Cluff, and Roger Beverage reiterate the conventional position taken by the banking trade associations in the BIF/SAIF debate - there's no problem; we shouldn't have to pay for it, because it wasn't our "fault"; make Fannie, Freddie, and taxpayers kick in, etc.

Having addressed a great many banker groups in the past year, I fully appreciate how deeply and sincerely bankers feel about these issues. I have been made to feel their pain.

Nevertheless, I still believe the associations are vastly overstating the case. Indeed, many bankers will confess privately that they recognize that the SAIF problem needs to be fixed, and fixed now.

Let me respond to several specific points made by the writers:

*The Fico-available portion of the SAIF assessment base is rapidly shrinking.

The American Bankers Association letter correctly points out that the overall SAIF assessment base grew in 1995. It neglects to disclose, however, that this growth was entirely accounted for by the growth of Oakar and Sasser deposits - deposits held by banking organizations that are not available to pay Fico interest.

In fact, bank-owned Oakar and Sasser deposits grew about $41 billion, while the Fico-available portion of the base, which has been shrinking at an average annual rate of about 11% since 1989, declined by $20 billion.

It is the steady rate of this decline - averaging 11% a year since 1989 - that gives rise to one of our major concerns (another being SAIF's vulnerability to the shock of unanticipated failures). It does not at all "stretch the imagination to expect a significant increase in the rate of decline of the remaining Fico-available assessment base if Congress should signal that it is going to put this issue on indefinite hold.

*Now is the best time for Congress to act.

There is a fundamental perversity in the associations' argument that there is no need for Congress to act now, because both the banking and thrift industries are in excellent condition.

Would they really have Congress and American taxpayers risk waiting until economic and industry conditions change for the worse, and we have a crisis at hand? Do they really think that banks would fare better under such circumstances?

On the contrary, in the midst of another thrift crisis the result for banks could well be far worse. Now is by far the best time to act, precisely because both industries are healthy and we are not facing a crisis.

*The costs to banks will be modest.

The associations have aggressively merchandised the notion that Fico sharing would amount to a "$12 billion tax" over the remaining 21 to 23 years that Fico bonds will be outstanding. (One might have hoped they would at least use the present value, a number closer to $6 or $7 billion).

In fact, the annual cost - 2.5 cents per $100 of deposits - really disappears into insignificance. It is less than 0.8 of 1% of 1995 after-tax income, or about 0.01 or 1% in return-on-assets.

This amount is particularly insignificant when one recognizes that, even with this cost, banks will be paying about 64% less for deposit insurance than their historical average cost. One can appreciate that banks might want free deposit insurance indefinitely, but 2.5 basis points at a time of record-high earnings does not seem cause for a holy war.

(It would be interesting, incidentally, to survey bank customers to ask whether they have enjoyed any benefits flowing from free deposit insurance and record earnings, such as lower rates on loans, higher rates on deposits, or reduced service charges).

Finally, the idea that if we had a 'free and just society," taxpayers would be asked to pay for the SAIF solution - which Tony Cluff forthrightly recognizes "may not be feasible" - is puzzling. Recall that both houses of Congress last year rejected the bankers associations' proposals to add the cost of a SAIF fix to more than $125 billion that taxpayers have already paid to vindicate the integrity of FDIC insurance coverage. The democratic process worked well then, and there is no reason for Congress to reach a different result this year.

John D. Hawke Jr.

Under secretary for domestic finance, Treasury Department Washington

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