I am pleased to convene the Financial Institutions Subcommittee for this second in a series of hearings to consider comprehensive deposit insurance reform. It is critical that we continue on with the business of America, and I would like to thank my colleagues here in the Senate for their commitment to this work.
Today, we will consider the topic of protecting retirement savings. So many of our retirees have spent their lives saving to make sure they can remain independent in their later years, especially given some uncertainty about the long-term health of Social Security. Many have put those savings to work for them in a variety of investments through tax-deferred accounts and have watched their balances mount.
Over the past few months, however, we have been reminded that while equity markets can provide unparalleled opportunities for economic growth, those opportunities come with volatility. And while many younger investors have enough time to ride out ups and downs, those of us who are closer to retirement age have to make sure we have enough savings in secure investments to ensure a comfortable retirement.
Yet while Congress has created significant incentives to encourage Americans to save for their retirement, we have not taken the necessary steps to let our retirees keep their life-savings safe in their local communities. We are just waking up to the fact that our current deposit insurance coverage of retirement savings is simply inadequate to support the cost of retirement in 2001.
As many of you know, I have been very interested in comprehensive deposit insurance reform, and I am convinced that this issue continues to grow in importance. The current deposit insurance reform system is dangerously pro-cyclical, and in a softening economy, banks are at real risk of having to absorb severe insurance premiums.
Those who resist a comprehensive reform package assume that the funds will never dip below 1.25 percent. To those individuals, I would simply point them to the latest FDIC Review Board report, which projects the BIF ratio possibly dipping to 1.23 percent for the first time since 1996.
The Senate Banking Committee, under the strong leadership of Chairman Sarbanes, recently looked into the failure of Superior Bank of Illinois, which FDIC projects will cost somewhere in the $500 million range, could cause fund ratios to dip still further. And we see daily reports of softening loan portfolios among our financial institutions, which provide the lifeblood of our economy.
Deposit insurance provides the rock-solid foundation that keeps our financial system healthy by giving depositors the confidence they need to keep their money in the bank. And those deposits, in turn, fund lending activities that finance our nation's commerce. We must take great care to ensure that our system remains healthy and make any revisions proactively, so we don't find ourselves in the position of having to act in a crisis mode.
Today, we will be looking at a very narrow slice of what I hope will be a comprehensive deposit insurance reform package. We are privileged to have a distinguished panel of experts who will help this Subcommittee think through the issues related to deposit insurance coverage of retirement accounts.
We have heard a great deal of discussion about the appropriate level of federal deposit insurance coverage, and that debate continues. But I was struck at our August 2 hearing by a question that Chairman Sarbanes put to our witness panel. Senator Sarbanes asked how it is we should approach the question of what the "right" level of coverage is.
Senator Sarbanes' question can, I believe, be answered in the context of retirement savings, and judging from the very thoughtful written testimony that we have received from today's witnesses, I am hopeful we will leave this hearing with some real insight into the matter.
Retirement accounts constitute a small proportion of deposits in FDIC-insured institutions. According to FDIC data, as of June 30, 2001, insured banks and thrifts held $219 billion in retirement accounts, 72.9% of which are insured. The remaining $59.3 billion of these retirement account deposits are uninsured. And this Subcommittee should be concerned. The safety of our retirees' savings should be a top priority for this Congress, especially as our citizens live longer and want to remain independent of outside assistance.
I had a chance to visit yesterday with FDIC Chairman Don Powell, who has earned his very distinguished reputation. He told me he strongly supports the recommendations the FDIC issued earlier this year with respect to comprehensive deposit insurance reform. And directly related to today's discussion, Mr. Powell urged me yesterday to consider raising deposit insurance coverage of retirement accounts to $250,000. My understanding is that such an increase would have a relatively small impact on the ratio of a combined insurance fund, in the neighborhood of 2 to 3 basis points.
I'm sure the Banking Committee will have occasion to hear directly from Mr. Powell on this topic. But today, we turn our attention to our distinguished witnesses, and I'd like to take just a moment to introduce them.
It is my great privilege to introduce Mr. Bill Seidman, who is so well known he probably doesn't need much introduction. Mr. Seidman is perhaps best known for his Chairmanship of the FDIC from 1985 to 1991, as well as his Chairmanship of the Resolution Trust Corporation. He has seen our financial system through some of its darkest hours, and he brings an important historical perspective to this discussion. Mr. Seidman has also found time to participate very successfully in the private sector, and we have all appreciated him in his current role as Chief Commentator on CNBC-TV. Mr. Seidman, welcome.
Our next witness is Mr. Howell Jackson, who is the Finn M.W. Caspersen and Household International Professor of Law at Harvard Law School. Professor Jackson has expertise in the areas of regulation of financial institutions, securities regulation, investment companies, and pensions and social security. Professor Jackson received his Bachelor's Degree from Brown University, followed by a JD and an MBA, both from Harvard.
Professor Jackson joined the faculty of Harvard Law School in 1989, and just last week was appointed Associate Dean for Research at the Law School. It is an honor to welcome him before this Subcommittee.
Finally, I would like to introduce Mr. Glenn Dahlke, President of the Dahlke Financial Group of Glastonbury, Connecticut, a family-owned sales and asset management company.
Mr. Dahlke began his career in 1977 as a representative at the Connecticut General Life Insurance Company office in New Britain. In 1990, he went into partnership with his father, Gerald Dahlke, also a Connecticut General representative. Together, they formed an independent sales and asset management company in Glastonbury that became the Dahlke Financial Group. Mr. Dahlke represents a critical sector of our nation's economy, the family-owned business. It is a privilege to have him before the Subcommittee today.
I now turn to Ranking Member Bennett for his opening statement.