Statement of
Martin J. Gruenberg, Chairman,
Federal Deposit Insurance Corporation
On
Wall Street Reform
Oversight of Financial Stability
And
Consumer and Investor Protections
to the
Committee on Banking, Housing
and
Urban Affairs, U.S. Senate
538 Dirksen Senate Office Building
February 14, 2013
Chairman Johnson, Ranking Member Crapo and members of the Committee, thank you
Chairman Johnson, Ranking Member Crapo and members of the Committee, thank you
for the opportunity to testify today on the Federal Deposit Insurance Corporation's
(FDIC) efforts to implement the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act).
The economic dislocations experienced in recent years, which far exceeded any since
the 1930s, were the direct result of the financial crisis of 2007-08. The reforms enacted
by Congress in the Dodd-Frank Act were aimed at addressing the causes of the
crisis. The reforms included changes to the FDIC’s deposit insurance program, a series
of measures to curb excessive risk-taking at large, complex banks and non-bank
financial companies and a mechanism for orderly resolution of large, nonbank financial
companies.
The regulatory changes mandated by the Dodd-Frank Act require careful
implementation to ensure they address the risks posed by the largest, most complex
institutions while being sensitive to the impact on community banks that did not
contribute significantly to the crisis. As implementation moves forward, the FDIC has
been engaged as well in an extensive effort to better understand the forces driving long-
term change among U.S. community banks and to solicit input from community bankers
on these trends and on the regulatory process.
My testimony will address the impact of the Dodd-Frank Act on the restoration of the
Deposit Insurance Fund (DIF), our efforts to carry out the requirement of the Act to
develop the ability to resolve large, systemic financial institutions, and our progress on
some of the key rulemakings. In addition, I will briefly discuss the results of our recent
community banking initiative.
Martin J. Gruenberg, Chairman,
Federal Deposit Insurance Corporation
On
Wall Street Reform
Oversight of Financial Stability
And
Consumer and Investor Protections
to the
Committee on Banking, Housing
and
Urban Affairs, U.S. Senate
538 Dirksen Senate Office Building
February 14, 2013
Chairman Johnson, Ranking Member Crapo and members of the Committee, thank you
Chairman Johnson, Ranking Member Crapo and members of the Committee, thank you
for the opportunity to testify today on the Federal Deposit Insurance Corporation's
(FDIC) efforts to implement the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act).
The economic dislocations experienced in recent years, which far exceeded any since
the 1930s, were the direct result of the financial crisis of 2007-08. The reforms enacted
by Congress in the Dodd-Frank Act were aimed at addressing the causes of the
crisis. The reforms included changes to the FDIC’s deposit insurance program, a series
of measures to curb excessive risk-taking at large, complex banks and non-bank
financial companies and a mechanism for orderly resolution of large, nonbank financial
companies.
The regulatory changes mandated by the Dodd-Frank Act require careful
implementation to ensure they address the risks posed by the largest, most complex
institutions while being sensitive to the impact on community banks that did not
contribute significantly to the crisis. As implementation moves forward, the FDIC has
been engaged as well in an extensive effort to better understand the forces driving long-
term change among U.S. community banks and to solicit input from community bankers
on these trends and on the regulatory process.
My testimony will address the impact of the Dodd-Frank Act on the restoration of the
Deposit Insurance Fund (DIF), our efforts to carry out the requirement of the Act to
develop the ability to resolve large, systemic financial institutions, and our progress on
some of the key rulemakings. In addition, I will briefly discuss the results of our recent
community banking initiative.
Condition of the FDIC Deposit Insurance Fund (DIF)
Restoring the DIF
The Dodd-Frank Act raised the minimum reserve ratio for the DIF from 1.15 percent of
estimated insured deposits to 1.35 percent, and required that the reserve ratio reach
1.35 percent by September 30, 2020. The FDIC is currently operating under a DIF
Restoration Plan that is designed to meet this deadline, and the DIF reserve ratio is
recovering at a pace that remains on track under the Plan. As of September 30, 2012,
the DIF reserve ratio stood at 0.35 percent of estimated insured deposits, up from 0.12
percent a year earlier. The fund balance has grown for eleven consecutive quarters,
increasing to $25.2 billion at the end of the third quarter of 2012. Assessment revenue,
fewer anticipated bank failures, and the transfer of fees previously set aside for the
Temporary Liquidity Guarantee Program (TLGP) have helped to increase the fund
balance.
Expiration of the Transaction Account Guarantee (TAG) Program
The Dodd-Frank Act provided temporary unlimited deposit insurance coverage for
noninterest-bearing transaction accounts from December 31, 2010, through December
31, 2012. This unlimited coverage was available to all depositors, including consumers,
businesses, and government entities, as long as the accounts were truly non-interest
bearing. As the TAG came to a conclusion, the FDIC worked closely with banks to
ensure that they would continue to be able to meet their funding and liquidity needs
after expiration of the program. Thus far, the transition away from this emergency
program has proceeded smoothly.
Expiration of the Debt Guarantee Program
Although not established by the Dodd-Frank Act, another program created in response
to the crisis, the Debt Guarantee Program (DGP), was established under emergency
authority to provide an FDIC guarantee of certain newly issued senior unsecured
debt. The program enabled financial institutions to meet their financing needs during a
period of record high credit spreads and aided the successful return of the credit
markets to near normalcy, despite the recession and slow economic recovery. By
providing the ability to issue debt guaranteed by the FDIC, the DGP allowed institutions
to extend maturities and obtain more stable unsecured funding.
As with the Dodd-Frank TAG program, the DGP came to a close at the end of
2012. One hundred twenty-two banks and other financial companies participated in the
DGP, and the volume of guaranteed debt peaked in early 2009 at $345.8 billion. The
FDIC collected $10.4 billion in fees and surcharges under the program. Ultimately, over
$9.3 billion in fees collected under the DGP have been transferred to assist in the
restoration of the DIF to its statutorily mandated reserve ratio of 1.35 percent of insured
deposits.
Restoring the DIF
The Dodd-Frank Act raised the minimum reserve ratio for the DIF from 1.15 percent of
estimated insured deposits to 1.35 percent, and required that the reserve ratio reach
1.35 percent by September 30, 2020. The FDIC is currently operating under a DIF
Restoration Plan that is designed to meet this deadline, and the DIF reserve ratio is
recovering at a pace that remains on track under the Plan. As of September 30, 2012,
the DIF reserve ratio stood at 0.35 percent of estimated insured deposits, up from 0.12
percent a year earlier. The fund balance has grown for eleven consecutive quarters,
increasing to $25.2 billion at the end of the third quarter of 2012. Assessment revenue,
fewer anticipated bank failures, and the transfer of fees previously set aside for the
Temporary Liquidity Guarantee Program (TLGP) have helped to increase the fund
balance.
Expiration of the Transaction Account Guarantee (TAG) Program
The Dodd-Frank Act provided temporary unlimited deposit insurance coverage for
noninterest-bearing transaction accounts from December 31, 2010, through December
31, 2012. This unlimited coverage was available to all depositors, including consumers,
businesses, and government entities, as long as the accounts were truly non-interest
bearing. As the TAG came to a conclusion, the FDIC worked closely with banks to
ensure that they would continue to be able to meet their funding and liquidity needs
after expiration of the program. Thus far, the transition away from this emergency
program has proceeded smoothly.
Expiration of the Debt Guarantee Program
Although not established by the Dodd-Frank Act, another program created in response
to the crisis, the Debt Guarantee Program (DGP), was established under emergency
authority to provide an FDIC guarantee of certain newly issued senior unsecured
debt. The program enabled financial institutions to meet their financing needs during a
period of record high credit spreads and aided the successful return of the credit
markets to near normalcy, despite the recession and slow economic recovery. By
providing the ability to issue debt guaranteed by the FDIC, the DGP allowed institutions
to extend maturities and obtain more stable unsecured funding.
As with the Dodd-Frank TAG program, the DGP came to a close at the end of
2012. One hundred twenty-two banks and other financial companies participated in the
DGP, and the volume of guaranteed debt peaked in early 2009 at $345.8 billion. The
FDIC collected $10.4 billion in fees and surcharges under the program. Ultimately, over
$9.3 billion in fees collected under the DGP have been transferred to assist in the
restoration of the DIF to its statutorily mandated reserve ratio of 1.35 percent of insured
deposits.