Statement of
Sheila C. Bair, Chairman,
Federal Deposit Insurance Corporation
On
Oversight of Implementation of the Emergency Economic
Stabilization Act of 2008
and Of
Government Lending and Insurance Facilities
Committee on
Financial Services
U.S. House of Representatives; Room 2128
Rayburn House Office Building
November 18, 2008
Chairman Frank, Ranking Member Bachus, and Members of the Committee, I
appreciate the opportunity to testify on behalf of the Federal Deposit Insurance
Corporation (FDIC) regarding recent efforts to stabilize the nation's financial markets
and reduce foreclosures.
The events of the past several months are unprecedented. Conditions in the financial
markets have shaken the confidence of people around the world in their financial
systems. Losses in the stock markets have reduced the valuations of publicly-traded
companies and have imposed losses on individual investors. Credit markets have not
been functioning normally, contributing to a rising level of distress in the economy. In
addition, high levels of foreclosures are contributing to downward pressure on home
prices.
The impact on confidence resulting from the cumulative impact of these events has
required the government to take extraordinary steps to bolster public confidence in our
financial institutions and the American economy.
Achieving this goal requires a sustained and coordinated effort by government
authorities. Congress passed the Emergency Economic Stabilization Act of 2008
(EESA), which provides authority for the purchase of troubled assets and direct
investments in financial institutions, a mechanism for reducing home foreclosures, and a
temporary increase in deposit insurance coverage. Working with our colleagues at the
Treasury Department and our fellow bank regulators, the FDIC is prepared to undertake
all necessary measures to preserve confidence in insured financial institutions.
Despite what we hear about the credit crisis and the problems facing banks, the bulk of
the U.S. banking industry is healthy and remains well-capitalized. What we do have,
however, is a liquidity problem. This problem originally arose from uncertainty about the
value of mortgage-related assets, but credit concerns have broadened over time,
making banks reluctant to lend to each other or lend to consumers and businesses.
Sheila C. Bair, Chairman,
Federal Deposit Insurance Corporation
On
Oversight of Implementation of the Emergency Economic
Stabilization Act of 2008
and Of
Government Lending and Insurance Facilities
Committee on
Financial Services
U.S. House of Representatives; Room 2128
Rayburn House Office Building
November 18, 2008
Chairman Frank, Ranking Member Bachus, and Members of the Committee, I
appreciate the opportunity to testify on behalf of the Federal Deposit Insurance
Corporation (FDIC) regarding recent efforts to stabilize the nation's financial markets
and reduce foreclosures.
The events of the past several months are unprecedented. Conditions in the financial
markets have shaken the confidence of people around the world in their financial
systems. Losses in the stock markets have reduced the valuations of publicly-traded
companies and have imposed losses on individual investors. Credit markets have not
been functioning normally, contributing to a rising level of distress in the economy. In
addition, high levels of foreclosures are contributing to downward pressure on home
prices.
The impact on confidence resulting from the cumulative impact of these events has
required the government to take extraordinary steps to bolster public confidence in our
financial institutions and the American economy.
Achieving this goal requires a sustained and coordinated effort by government
authorities. Congress passed the Emergency Economic Stabilization Act of 2008
(EESA), which provides authority for the purchase of troubled assets and direct
investments in financial institutions, a mechanism for reducing home foreclosures, and a
temporary increase in deposit insurance coverage. Working with our colleagues at the
Treasury Department and our fellow bank regulators, the FDIC is prepared to undertake
all necessary measures to preserve confidence in insured financial institutions.
Despite what we hear about the credit crisis and the problems facing banks, the bulk of
the U.S. banking industry is healthy and remains well-capitalized. What we do have,
however, is a liquidity problem. This problem originally arose from uncertainty about the
value of mortgage-related assets, but credit concerns have broadened over time,
making banks reluctant to lend to each other or lend to consumers and businesses.
In my testimony, I will detail recent actions by the FDIC to restore confidence in insured
financial institutions. I also will discuss the FDIC's continuing efforts to address the root
cause of the current economic crisis – the failure to deal effectively with unaffordable
loans and unnecessary foreclosures.
Recent Actions to Restore Confidence
The FDIC has taken several actions in coordination with Congress, the Treasury
Department, the Federal Reserve Board, and other federal regulators, designed to
restore confidence in insured financial institutions. These have included temporarily
increasing deposit insurance coverage and providing guarantees to new, senior
unsecured debt issued by banks, thrifts or holding companies. These measures will help
banks fund their operations.
Increased Deposit Insurance
With the enactment of the EESA, deposit insurance coverage for all deposit accounts
was temporarily increased to $250,000, the same amount of coverage previously
provided for self-directed retirement accounts. Temporarily raising the deposit insurance
limits has bolstered public confidence and successfully provided additional liquidity to
FDIC-insured institutions.
The FDIC implemented the coverage increase immediately upon enactment of EESA.
The FDIC website and deposit insurance calculators were updated promptly to reflect
the increase in coverage and ensure that depositors understand the change. It is
important to note that the increase in coverage to $250,000 is temporary and only
extends through December 31, 2009. The FDIC will work closely with Congress in the
coming year to ensure that consumers are fully informed of changes to the deposit
insurance coverage level, as well as the temporary nature of the increase, and
understand the impact on their accounts.
Temporary Liquidity Guarantee Program
On October 14, the FDIC Board of Directors approved a new Temporary Liquidity
Guarantee Program (TLGP) to unlock inter-bank credit markets and restore rationality to
credit spreads. This voluntary program is designed to free up funding for banks to make
loans to creditworthy businesses and consumers. The Board issued an interim rule1
and requested comments on a number of issues. Comments were due by November 13
and the Board will be reviewing those comments and considering any changes before
publishing a final rule. The Board expects to adopt a final rule at its meeting scheduled
for Friday this week.
The program as outlined in the interim rule has two key features. The first feature is a
guarantee for new, senior unsecured debt issued by banks, thrifts, bank holding
companies, and most thrift holding companies, which will help institutions fund their
operations. Eligible entities include: 1) FDIC-insured depository institutions; 2) U.S.
financial institutions. I also will discuss the FDIC's continuing efforts to address the root
cause of the current economic crisis – the failure to deal effectively with unaffordable
loans and unnecessary foreclosures.
Recent Actions to Restore Confidence
The FDIC has taken several actions in coordination with Congress, the Treasury
Department, the Federal Reserve Board, and other federal regulators, designed to
restore confidence in insured financial institutions. These have included temporarily
increasing deposit insurance coverage and providing guarantees to new, senior
unsecured debt issued by banks, thrifts or holding companies. These measures will help
banks fund their operations.
Increased Deposit Insurance
With the enactment of the EESA, deposit insurance coverage for all deposit accounts
was temporarily increased to $250,000, the same amount of coverage previously
provided for self-directed retirement accounts. Temporarily raising the deposit insurance
limits has bolstered public confidence and successfully provided additional liquidity to
FDIC-insured institutions.
The FDIC implemented the coverage increase immediately upon enactment of EESA.
The FDIC website and deposit insurance calculators were updated promptly to reflect
the increase in coverage and ensure that depositors understand the change. It is
important to note that the increase in coverage to $250,000 is temporary and only
extends through December 31, 2009. The FDIC will work closely with Congress in the
coming year to ensure that consumers are fully informed of changes to the deposit
insurance coverage level, as well as the temporary nature of the increase, and
understand the impact on their accounts.
Temporary Liquidity Guarantee Program
On October 14, the FDIC Board of Directors approved a new Temporary Liquidity
Guarantee Program (TLGP) to unlock inter-bank credit markets and restore rationality to
credit spreads. This voluntary program is designed to free up funding for banks to make
loans to creditworthy businesses and consumers. The Board issued an interim rule1
and requested comments on a number of issues. Comments were due by November 13
and the Board will be reviewing those comments and considering any changes before
publishing a final rule. The Board expects to adopt a final rule at its meeting scheduled
for Friday this week.
The program as outlined in the interim rule has two key features. The first feature is a
guarantee for new, senior unsecured debt issued by banks, thrifts, bank holding
companies, and most thrift holding companies, which will help institutions fund their
operations. Eligible entities include: 1) FDIC-insured depository institutions; 2) U.S.