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May
21, 2002
(House)
H.R. 3717 - Federal Deposit Insurance Reform Act of 2002
(Rep. Bachus (R) Alabama and 63 cosponsors)
The
Administration supports those provisions of H.R. 3717 that would
improve the deposit insurance system's operation and fairness. Specifically,
the Administration supports provisions that would: (1) allow the
insurance fund reserve ratio to vary within a range and eliminate
triggers that could cause sharp changes in premiums; (2) merge the
bank and thrift insurance funds; and (3) ensure that institutions
appropriately compensate the FDIC for insured deposit growth while
also taking into account the past contributions of many institutions
to build fund reserves.
The
Administration, however, strongly opposes those provisions of H.R.
3717 that would raise deposit insurance coverage limits. The interests
of depositors will not be served by an increase in deposit insurance
coverage limits. The average saver would derive no financial benefit
from increased coverage limits. The small fraction of savers with
substantial deposits may obtain as much coverage as desired at minimal
inconvenience by placing deposits at multiple institutions. An increase
in coverage limits would neither enhance competition among depository
institutions in general nor make the nation's community banks more
competitive in raising funds.
Increased
coverage limits would also expose taxpayers to additional risk while
providing no benefit to the overwhelming majority of Americans.
Higher coverage limits would mean greater off-balance sheet contingent
liabilities of the Government and weaker market discipline, exposing
the insurance fund and taxpayers to increased risk of loss.
To
avoid dilution of FDIC and NCUA reserves resulting from the higher
coverage limits provided in H.R. 3717, banks, thrifts, and credit
unions will need to pay at least $3.5 billion in higher insurance
assessments according to CBO and OMB estimates. A substantial amount
of the higher industry costs will occur in the first year.
The
Administration notes the submission to Congress by the FDIC of recommendations
for legislative or administration action is subject to the President's
authority under the Recommendations Clause of the Constitution.
Pay-As-You-Go-Scoring
Any
law that would reduce receipts or increase direct spending is subject
to the PAYGO requirements of the Balanced Budget and Emergency Deficit
Control Act (BEA) and could cause a sequester of mandatory programs
in any fiscal year through 2006. The requirement to score PAYGO
costs expires on September 30, 2002, and there are no discretionary
caps beyond 2002. The Administration will work with Congress to
ensure fiscal discipline consistent with the President's budget
and a quick return to a balanced budget. The Administration will
also work with Congress to ensure that any unintended sequester
of spending does not occur.
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