Letters to the Editor/Opinion Editorials Deposit Insurance Bill Will Manage Risks
15 August 2005
The Wall Street Journal
(Copyright (c) 2005, Dow Jones & Company, Inc.)
Your Aug. 10 editorial regarding the deposit insurance legislation currently pending in Congress, "Deposit Insurance Deja Vu," misrepresents the FDIC's position. For the past four years, the FDIC has been reforming the way it goes about its business of ensuring the stability of the U.S. banking system. A major component of the reform effort has been a true risk-based premium system -- something we do not currently have -- in part due to the statutory restrictions imposed on the agency that this bill will alleviate.
The current system prevents the FDIC from appropriately charging for risk, which increases the potential for moral hazard and makes safer banks unnecessarily subsidize riskier banks, which should shoulder more of the burden.
Risk-based premiums are just one of the key reforms included in the current deposit insurance reform legislation. Other reforms would merge the two deposit insurance funds to create a single, better diversified fund to protect all depositors in insured banks and thrifts.
In addition, the bill would change current laws that charge the highest premiums against banks during the most severe economic downturns. In other words, the bill would stop banks from having to send funds to Washington when they are most needed to support economic recovery in local communities.
Since the days of the S&L crisis, Congress has passed several bills to give bank regulators powers that we did not have when we were faced with the problems of the 1980s. Deposit insurance reform and its true risk-based premium system would be an additional tool at the disposal of the FDIC.
Deposit insurance reform legislation will create a more stable and effective deposit insurance system for the benefit of all Americans. Congress has a rare opportunity to improve the deposit insurance system while the industry is healthy and without the crisis atmosphere that leads to poor decision-making.
Donald E. Powell
Federal Deposit Insurance Corporation