The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FOR IMMEDIATE RELEASE PR-143-86 (9-8-86) FDIC CHAIRMAN URGES BANKERS TO SUPPORT PENDING LEGISLATION FDIC Chairman L. William Bankers Association Seidman said: to Seidman actively today support urged members passage of of the Senate "The House and Senate must get together and send Kentucky bill S. 2752. this critical piece of banking legislation on to the President." Addressing the group in Louisville, Chairman bill Seidman explained the would provide the FDIC important new authority to deal with mounting bank failures. It would emergency interstate continue and mergers, expand the FDIC’s authority bill would also Management and FDIC of reaffirm the independence Budget’s control. maintaining to arrange as well as allow the agency to own and operate failed banks as "bridge banks" until permanent solutions the that of can be found. The the FDIC from the Office of Chairman Seidman stressed the importance flexibility to deal to swiftly with problems in the banking industry. Seidman it also encouraged the banking industry to support the legislation because provides Insurance for Corporation. recapitalization of the Federal Savings and Loan "The FSLIC plan is better than using tax dollars or a forced merger of the FSLIC and the FDIC," Seidman said. Noting a heavy legislative agenda, Chairman Seidman expressed concern that passage of S. 2752 might be jeopardized particularly if Congress were to debate over the "nonbank bank" issue. Such debate would not renew produce agreement, he noted, and, for all practical purposes, is unnecessary since Comptroller of the Currency has agreed the to defer any new charter approvals until the next Congress. ### FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth St., N.W., Washington, D.C. 20429 • 202-898-6996 AN ADDRESS BY L. WILLIAM SEIDMAN, CHAIRMAN FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. BEFORE THE KENTUCKY BANKERS ASSOCIATION OUR MISSION AND THE CONGRESS . » • * * • * L o u is v ille , Kentucky Septem ber 8, 1986 Good morning ladies and gentlemen and thank you for inviting me here. It is an honor to be introduced by Congressman Hubbard, a respected member of the House Banking Committee. I'd like to take the time you have given me to rail your attention to some pressing matters in Washington, which I f e e l a re o f g r e a t im portance to th e e n tir e banking in d u stry . Today Congress returns to complete action on any legislation considered essential before adjourning around October 3. I t will be an exceptionally busy month. Any b i ll th at i s not p e rce iv e d to be c r i t i c a l w ill be abandoned and will have to be reintroduced when a new Congress convenes a f t e r th e November e le c tio n s. High up on each member's l i s t i s the much publicized t a x reform le g islatio n . Also, th ere w ill be h eated d e b ate on th e q u e stio n o f increasing the federal government's debt lim itation. And related to the question of debt, Congress must decide whether to le g isla te budget cuts c a lle d f o r by th e Gramm-Rudman-Hollings Act. In th e midst of a ll th ese d iscu ssio n s, Congress must also c o n sid e r appropriation b i lls to keep the fed eral government rollin g u n til next year. As you can tell, Congress has some very important issu e s to deal with. There is also a b ill which I consider of cru cial importance to the banking industry which should not be allowed to go by th e w ayside. This brings me to my subject. Senator Gam has sent a most important 1 proposal to the Senate floor. The House and Senate must get togeth er and send th is c r itic a l piece of banking le g isla tio n on to th e P re sid e n t. S e n ato r G arn 's b i l l would accom plish fo u r th in g s . First, i t would continue and enhance our ab ility to deal with larg e failing institutions when in-state options are severely limited. This i s an objective strongly endorsed by a ll fed eral bank su p erv iso rs in the s o - c a lle d R e g u la to rs' B ill. Second, i t would give u s authority to create bridge banks. This would give us more time to find better solution s fo r resolving la rg e and sm all bank f a i lu r e s . Third, i t would reaffirm the FDIC's authority to respond promptly to problems in the banking industry as they a rise . I t would recognize the insurance fund represents your contribution to the banking industry, not t a x d o lla r s s u b je c t to OMB c o n tro l. Finally, i t would provide for the recap italizatio n of FSLIC in a way t h a t would not in v o lv e ta x d o lla r s o r your in su ra n c e fund. P le a se allow me to e la b o r a te on th e se p ro v is io n s. Fortunately, people here in Kentucky have not grown accustomed to the FDIC taking over banks. Only two banks have faile d th is year, and only th ree sin ce 1983. I am su r e you a re aw are, though, bank f a i l u r e s nationwide could approach 160 by the end of th is year. And more than 1400 banks are now on our problem l i s t . Hardly a day goes by th a t another in s t it u t io n d o e sn 't g ain t h a t d u bio u s d is tin c tio n . I certainly hope the failure rate here remains low so the FDIC never becomes a major employer or confronts the problems i t fac e s elsewhere in finding bidders fo r faile d banks. Our a b ility to obtain b id s in other 2 states, however, does affect bankers here. The savings the FDIC re aliz e s by avoiding a payoff situation benefits you because your insurance fund's c o s t s a r e minimized. The Senate b ill would expand the FDIC's options fo r locatin g bidders to buy failing banks. I t would give us the authority we sometines need to b rin g o u t - o f - s t a t e in v e s t o r s in to th e b id d in g p r o c e ss. Our current authority to arrange in te rsta te acq u isitio n s i s v ery limited and exp ires September 15. Today we can go out of sta te fo r a buyer only when an institution has $500 million or more in a ss e ts and it has been closed. Moreover, the current law does not provide authority fo r d e a lin g with f a ilin g banks o f m ultibank h oldin g com panies. The Senate Banking Committee has agreed to lower the $500 million size threshold to $250 mi l l i on. The $500 million threshold i s too high of a h u rd le, a s most tro u b le d banks a re c o n sid e ra b ly sm aller. In addition, upon determination by the pertinent chartering authority that a bank is failing, the FDIC would be authorized to arrange an open bank acquisition. Such an opportunity means franchise value would be le s s eroded by the flight of bank customers and tax b en efits may be retained. This would be reflected in b id s from p o te n tia l p u r c h a se r s, th ereb y red u cin g th e c o s t s to your in su ra n c e fund. The Senate b ill also recognizes situations where a fa ilin g bank i s an integral part of a larger banking organization. I t would expand th e scope of interstate acquisition authority to include bank holding companies when the failing bank is over $250 million and represents a sig n ific an t portion o f th e o r g a n iz a tio n . Today, potential bidders may be discouraged from bidding on a fa ilin g 3 bank i f they cannot also acquire key a ffilia te s . The value of a fa ilin g bank i s diminished when separated from i t s network. This r a ise s the Fund's costs. Moreover, the dismemberment of an established system could be v e ry d is r u p tiv e to th e a ffe c te d lo c a l community. Some in Washington have viewed the proposal on emergency acquisitions as legislation intended to help o il patch and farm sta te s. With Texas, California and others moving toward interstate banking, these sk ep tics are wondering whether the power to arrange in te rsta te mergers i s actu ally needed. Certainly many of the troubled banks now confronting the FDIC are located in o il patch and farm sta te s. But i t wasn't long ago th a t New England—now a booming region—suffered widespread unemployment a s i t s in d u strial base shrunk. The g re at ste e l towns of Pennsylvania have weathered many economic cycles. And the boom and bust cycle ty p ic a l of a c o al p ro d u cin g reg io n i s not unknown in t h i s s t a t e . No region of the country i s immune when it comes to changing economic cycles. Nor are banks now th at they are o p eratin g w ithin a h igh ly co m p etitiv e environm ent. Even with new emergency acquisition authority, however, p u ttin g together a satisfactory solution fo r a fa ilin g bank in a sh ort period of time will not always be possible. In such situ atio n s a bridge bank-—an institution owned and operated for a limited time by the FDIC—would help u s arrange an orderly return of the bank to the p riv ate sector. The Sen ate b i l l would l e t u s e s t a b lis h such b r id g e ban k s. With more time, potential buyers would have an opportunity to a ss e ss their risk s and hopefully acquire more of a faile d bank's a ss e ts. This 4 would minimize disruption to banking se rv ice s and keep funds flowing to borrowers until a more permanent solution can be arranged. Creditors, the affected community, the insurance fund and the banking industry a ll would b e n e fit. The b ill also would reaffirm that the FDIC, not th e OMB bureaucracy, has the authority to determine how the banking industry's funds are spent. As some of you may know, OMB has suddenly decided th a t an obscure, 36-year old law called the Antideficiency Act g iv e s i t th e r ig h t to c o n tro l th e FD IC's b u d get. We knew—and Congress has repeatedly recognized—the FDIC's operations are completely funded by cur customers. Bankers pay fo r th e confidence the FDIC seal in stills in depositors. Today the FDIC has th e fle x ib ility to deal swiftly with troubled conditions in the banking industry. L et's keep i t t h a t way| I t makes little sense to me why we should seek OMB's b lessin g before spending the banking industry's money on banking industry problems. The importance of maintaining budgetary discretion cannot be overstated—not only fa r dealing with bank failures but for monitoring and controlling the r i s k s t o th e in su ra n c e fund. Currently, our examination force i s stretched f a r too thin. As some of you may have read in Friday's Wall Street Journal, we are not gettin g into our banks as often as we should. Nationwide, nearly one-half of our exam inations a r e o v er two y e a r s old . In certain regions, such as the Southwest, the figure i s well above 75 percent. Examinations two, three, or more y ears old have questionable value. They hardly represent an adequate b a s is f o r m onitoring th e 5 con d itio n o f a banking in s titu t io n . We fe e l more frequent examinations will help management id e n tify problems In time to effect a solution. I f current tren d s continue, there could be one bank on our problem lis t for each FDIC examiner by the time Congress reconvenes in January. We need the flexibility to provide fo r an adequate examiner staff. I hope you and your congressman agree with me on th a t. Before closing, I would lik e to touch on one more fe a tu re o f th e Senate b i ll which may not be c r itic a l to th e FD IC's o p e ra tio n s b u t nonetheless should be supported by the baulking industry. I t i s th e recap italizatio n plan f o r th e F e d e ra l S a v in g s and Loan In su ra n ce C orpo ration . Many have taken their shots at our fin an cial in stitu tio n competitors in the S & L industry. Regardless of the differences—or lack of—between commercial banks and S & Ls, the public today looks primarily to what rate an institution is paying on deposits and whether i t is a fed erally insured in stitu tio n . L i t t le e f f o r t i s made to determ ine whether th e s e a l f displayed on a financial in stitu tio n 's door belongs to the FSLIC or the FDIC. The plan now in th e S en ate would be a w orkable approach f o r recap italizin g FSLIC without requiring a d irect infusion of ta x p a y e r funds. Critical d o llars would be contributed to th e FSLIC fund. This infusion would replenish past losses and provide the Bank Board with the r e so u r c e s i t n eeds to d e a l with i t s tro u b le d in s t i t u t io n s . The FSLIC recapitalization plan is a workable approach fo r preserving confidence in a ll federally insured fin an cial in stitu tio n s. Moreover, i t is fa r preferable to another alternative—a forced merger of the FSLIC and 6 FDIC. I f FSUEC is not allowed to work out it s own problems th ere are few alternatives. A merger of the insurance funds may become unavoidable. I hope I have impressed upon you the importance of the Senate b i ll to the FDIC—and to the banking industry. We would lik e to see th is b ill quickly enacted. Unfortunately, any banking b ill runs the r isk of gettin g bogged down i f Congress renews the debate over the question of nonbank banks. For a ll practiced purposes, the nonbank bank issu e h a s been delayed until the next Congress by the agreement of the Comptroller of the Currency to d e fe r any new c h a r te r a p p ro v a ls u n t il t h a t tim e. Debate on nonbank banks would only delay enactment of th is e sse n tia l legislation. I t would not achieve nonbank bank le g islatio n , fo r th ere i s little chance of an agreement being struck on th a t issu e . The debate would only s p o il p a s s a g e o f a v ery d e s ir e a b le b i l l . . In concluding, I want to s t r e s s th at you have a d irec t in te re st in each featu re of th e b i l l se n t by S e n ato r Garn to C o n gress. T his legislation will reduce the operating c o sts of your insurance fund a t a time when the demands being placed on the Fund and the FDIC s t a f f are increasing. I t also would make c le ar th at the FDIC insurance fund i s intended to serve the needs of the banking industry. I encourage you to le t y ou r congressm en know you su p p o rt t h i s c r u c ia l le g is la t io n . Thank you. 7
@FedFRASER