Thank you, Mr. Chairman.
I'd like to express my appreciation for your holding this hearing today. As we are all aware, FDIC insurance plays a critical role in our nation's financial system by ensuring consumer confidence and stability in the banking system. It's been almost two years since the FDIC issued a position paper recommending various reform measures meant to strengthen the system. It is my hope that we can move forward with legislation to implement these recommendations in a timely manner.
There are a number of issues involved in FDIC reform for which there appears to be widespread consensus. For instance, the merging of the Bank Insurance Fund and the Savings Association Insurance Fund into a single deposit insurance fund is long overdue. The much-publicized failure of thrifts in the late 80's and early 90's drastically reduced the number of thrifts that participate in the Savings Association Insurance Fund, creating greater volatility in the fund. The merger is a commonsense way to address this problem.
Most would also agree that we should remove the current hard target for the designated reserve ratio and replace it with a flexible range. This change would allow banks to do their job and provide credit when it is most important: when the economy is struggling. Both this issue and the merger issue were raised by the FDIC in their position paper, and I believe these changes will meet with little dissent.
However, there are some issues that have generated a great deal of debate. One such issue where we will find different views among our very distinguished panel of witnesses is on the proposed increase of FDIC coverage levels above the current $100,000. My major concern on this issue is that increasing coverage levels will result in sharply higher premiums, especially at a time in our economy when we need more, not less, funds available for consumer and commercial lending. We cannot overlook this complication.
Second, we must deal effectively with the so-called "free riders." We have more than 900 new institutions, with billions of insured deposits, which have never paid premiums for the deposit insurance they receive. Meanwhile, other institutions have greatly increased their deposits since 1996 but have not paid any additional premiums. This is an issue of basic fairness on which we must act equitably.
I want to thank the witnesses before us today for taking the time to share their considerable knowledge on these important issues. I look forward to an informative discussion and trust that we can work towards a consensus and proper legislative response to these issues.