Community Bankers See Pluses and Minuses in FDIC Reform Plan

Last August, FDIC set the stage for the debate over the future of deposit insurance by releasing a long and detailed options paper that solidified many issues that had been swirling around the industry. early April, after spending months gathering and considering the opinions of bankers and others, as well as its own research and analysis, FDIC issued its recommendations to Congress for reform. Community bankers who have considered the plan's main points find both things to like and things to bristle at in its pages. What's clear, however, is that the agency's recommendations are really a beginning, not an end. fact, some say Congress will do little with the issue this year- or possibly even this Congress-besides talk and hold hearings. FDIC Chairman Donna Tanoue is very committed to reform. Tanoue was a Clinton appointee, however, and her days are numbered. The Bush Administration only recently made its choice for her replacement official, and that choice-Texas banker Donald Powell-still has to be formally nominated and then confirmed by the Senate, after procedural issues, such as his current ownership stake in his bank, are resolved. How quickly-and if-the new chairman will pick up the old team's proposals remains to be seen, though it is unlikely that the agency's work will be ignored. The House Financial Services Committee, under new Chairman Mike Oxley (R.-Ohio), planned to hold hearings in mid-May. Senate Banking Committee Chairman Phil Gramm hasn't expressed any interest in pursuing the deposit insurance matter-having already made it clear that he opposes increasing the deposit insurance ceiling. Reform was not among the committee priorities he listed earlier this year. [An exclusive interview with Gramm, touching on these issues, will appear in the July issue.] Some insiders speculate that the Senate will wait for the House to take decisive action on reform before doing much on the matter. The most important work, ultimately, may take place outside of Washington. In this Congress, for anything to be enacted in this arena, believe will have to have a consensus product that has the support of the Administration, a strong bipartisan majority in Congress, and the industry, says Edward Yingling, ABA's executive director for government relations. Continuing, Yingling said that if a consensus could be developed (and some bankers still differ on whether this is even a matter that should be pursued), we might have a chance to get something done late this year or early next year. history tells us that enacting any major banking legislation is always difficult. What FDIC said-and how bankers feel Here's a summary of what FDIC recommended, and of community bankers' early views on the recommendations: Increasing The Deposit Insurance Ceiling FDIC proposes indexing the maximum level of deposit insurance coverage to maintain its real value. Early in the debate over deposit insurance, many deposit-starved community bankers favored increasing the current ceiling to as much as $200,000. This attitude has evolved in many quarters. Everybody was assuming that we'd get double coverage for nothing, says Mike Grove, president, $55 million-assets First National Bank of the Rockies. But that's surely not going to happen. An ABA-sponsored research project found that raising the ceiling would bring some money back into the industry-but at a price. The price would be an increase in covered deposits such that a resumption of collection of premiums from all banks would be triggered. I'm not convinced that increasing coverage would have brought in much, says Richard Morthland, chairman and CEO, of $670 million-assets Peoples Bank & Trust Co., Selma, Ala. And if they did insure up to $200,000, I know I'd be paying more in premiums. addition, some bankers have seen their local deposit-gathering situation improve, which has lessened their desire to push for higher coverage. …