Remarks
By
Sheila C. Bair, Chairman,
Federal Deposit Insurance Corporation;
Before the
New York Bankers Association;
Washington, D.C.
July 19, 2006
Thank you. I'm very pleased to be here today.
As you know, I am new to the FDIC, having served as Chairman just under a month. I'm
extremely honored to be appointed to this position. Having worked in the financial
services field for much of my career – both in government and the private sector – I've
always held the FDIC in the highest regard. As deposit insurer of the almost 8,800
banks and savings associations and federal supervisor of over 5,200 banks, the FDIC is
vitally important to the stability of our nation's economy. Our deposit insurance system
is, indeed, a model for nations around the world.
Economic and Banking Conditions in New York
I know that you are as pleased as I am that the banking industry in the nation and in
New York, in particular, remain strong. Economic activity in New York continues to
expand. The state has experienced employment growth for over two years, led by the
financial sector. We have observed continued health among New York-based insured
institutions, which have reported improvement in already strong asset quality. On the
other hand, we've also noticed, as we have across the country, continuing pressure on
net interest margins owing, in part, to the flattened yield curve.
Background on Deposit Insurance Reform
Today, I'd like to discuss one of the many critical issues facing the FDIC today,
implementation of deposit insurance reform.
On February 8th of this year, President Bush signed into law the Federal Deposit
Insurance Reform Act of 2005, a law containing sweeping improvements for our federal
deposit insurance system. Securing enactment of this legislation was a long, multi-year
process and I thank my predecessors, former Chairmen Don Powell and Donna
Tanoue, and Vice Chairman Marty Gruenberg, for their efforts toward passage of this
comprehensive law.
Federal deposit insurance was created during a period of economic crisis to stabilize
the economy by protecting depositors. It has been remarkably effective in achieving its
goals over the years and has served us very well. So why was a reform package
needed?
By
Sheila C. Bair, Chairman,
Federal Deposit Insurance Corporation;
Before the
New York Bankers Association;
Washington, D.C.
July 19, 2006
Thank you. I'm very pleased to be here today.
As you know, I am new to the FDIC, having served as Chairman just under a month. I'm
extremely honored to be appointed to this position. Having worked in the financial
services field for much of my career – both in government and the private sector – I've
always held the FDIC in the highest regard. As deposit insurer of the almost 8,800
banks and savings associations and federal supervisor of over 5,200 banks, the FDIC is
vitally important to the stability of our nation's economy. Our deposit insurance system
is, indeed, a model for nations around the world.
Economic and Banking Conditions in New York
I know that you are as pleased as I am that the banking industry in the nation and in
New York, in particular, remain strong. Economic activity in New York continues to
expand. The state has experienced employment growth for over two years, led by the
financial sector. We have observed continued health among New York-based insured
institutions, which have reported improvement in already strong asset quality. On the
other hand, we've also noticed, as we have across the country, continuing pressure on
net interest margins owing, in part, to the flattened yield curve.
Background on Deposit Insurance Reform
Today, I'd like to discuss one of the many critical issues facing the FDIC today,
implementation of deposit insurance reform.
On February 8th of this year, President Bush signed into law the Federal Deposit
Insurance Reform Act of 2005, a law containing sweeping improvements for our federal
deposit insurance system. Securing enactment of this legislation was a long, multi-year
process and I thank my predecessors, former Chairmen Don Powell and Donna
Tanoue, and Vice Chairman Marty Gruenberg, for their efforts toward passage of this
comprehensive law.
Federal deposit insurance was created during a period of economic crisis to stabilize
the economy by protecting depositors. It has been remarkably effective in achieving its
goals over the years and has served us very well. So why was a reform package
needed?
For two main reasons: First, to provide the FDIC with greater flexibility in managing the
fund in order to maintain stability and public confidence in the banking system. Integrity
of the fund has been a continuing goal for the FDIC since its inception. The old system
provided for a potentially severe assessment "shock" once the designated reserve ratio
(DRR) moved below 1.25 percent. We now have considerably greater latitude to
maintain the fund at prudent levels and spread the assessment burden more evenly
over time.
The second major goal of reform was to make assessments more risk sensitive so that
the assessment burden falls more fairly across insured institutions. The legislation also
gives us the ability to recognize past contributions by institutions in building up the fund.
Congress gave us nine months to implement the provisions of the reform legislation.
That means we have until November 5th of this year to adopt most of the final
regulations. That's a lot to do in a short time. I would like to review with you where we
stand in our efforts to implement reform.
Funds Merger
As its first order of business, the FDIC merged the Bank Insurance Fund (BIF) and the
Savings Association Insurance Fund (SAIF) into the new Deposit Insurance Fund, or
DIF. The merger of the funds took effect on March 31st.
Coverage Limits
Next, the FDIC Board adopted interim final regulations that implement the substantive
changes to the FDIC's insurance coverage rules, effective April 1. As you know, the
biggest change was to increase coverage for certain retirement plan deposits to
$250,000. The basic insurance limit for other depositors – individuals, joint
accountholders, businesses, government entities and trusts – remains at $100,000, but
may be adjusted for inflation in future years.
One-Time Assessment Credits
On May 9th, the FDIC Board approved three notices of proposed rulemaking. The most
important of these proposed a system for distributing and using the $4.7 billion one-time
assessment credit that Congress provided. Congress created this credit to recognize
the contributions that institutions made to build the deposit insurance funds following the
bank and thrift crises of the late 80s and early 90s. The Reform Act requires that the
credit be distributed among "eligible insured depository institutions" and their
successors. Eligible institutions, generally speaking, are those that were in existence on
December 31, 1996, and had paid a deposit insurance assessment before then. By the
way, any bank can find its preliminary estimated one-time assessment credit amount
through a search tool on the FDIC's website.
fund in order to maintain stability and public confidence in the banking system. Integrity
of the fund has been a continuing goal for the FDIC since its inception. The old system
provided for a potentially severe assessment "shock" once the designated reserve ratio
(DRR) moved below 1.25 percent. We now have considerably greater latitude to
maintain the fund at prudent levels and spread the assessment burden more evenly
over time.
The second major goal of reform was to make assessments more risk sensitive so that
the assessment burden falls more fairly across insured institutions. The legislation also
gives us the ability to recognize past contributions by institutions in building up the fund.
Congress gave us nine months to implement the provisions of the reform legislation.
That means we have until November 5th of this year to adopt most of the final
regulations. That's a lot to do in a short time. I would like to review with you where we
stand in our efforts to implement reform.
Funds Merger
As its first order of business, the FDIC merged the Bank Insurance Fund (BIF) and the
Savings Association Insurance Fund (SAIF) into the new Deposit Insurance Fund, or
DIF. The merger of the funds took effect on March 31st.
Coverage Limits
Next, the FDIC Board adopted interim final regulations that implement the substantive
changes to the FDIC's insurance coverage rules, effective April 1. As you know, the
biggest change was to increase coverage for certain retirement plan deposits to
$250,000. The basic insurance limit for other depositors – individuals, joint
accountholders, businesses, government entities and trusts – remains at $100,000, but
may be adjusted for inflation in future years.
One-Time Assessment Credits
On May 9th, the FDIC Board approved three notices of proposed rulemaking. The most
important of these proposed a system for distributing and using the $4.7 billion one-time
assessment credit that Congress provided. Congress created this credit to recognize
the contributions that institutions made to build the deposit insurance funds following the
bank and thrift crises of the late 80s and early 90s. The Reform Act requires that the
credit be distributed among "eligible insured depository institutions" and their
successors. Eligible institutions, generally speaking, are those that were in existence on
December 31, 1996, and had paid a deposit insurance assessment before then. By the
way, any bank can find its preliminary estimated one-time assessment credit amount
through a search tool on the FDIC's website.