Mr. Chairman, thank you for holding today's oversight hearing on the federal deposit insurance system. I would like to welcome our distinguished panel of witnesses, and thank them for their time and for their thoughtful testimony. I would note that we are not giving Chairman Greenspan much time to catch his breath from the monetary policy hearings two weeks ago, but we are always pleased to have him here before the Senate Banking Committee.
While the political landscape has undergone significant change since we last looked at the issue last year, the underlying need for reform has not. In fact, the Bank Insurance Fund has dropped back to 1.25 percent, underscoring the importance of this discussion. I am pleased that Chairman Shelby understands the critical nature of these reforms.
I have worked hard over the past two years with my colleagues, in particular Senator Hagel, to focus attention on the need for deposit insurance reform. And I am pleased to see a growing consensus around many of the proposals contained in S. 229, the Safety Act. Again this year, we have significant support for the Safety Act from members of this Committee, including Senators Hagel, Reed, Enzi, Stabenow and Allard. I believe that the absolutely bipartisan support for the Safety Act shows the importance of this issue to our financial system.
If deposit insurance reform doesn't grab a lot of headlines, that means, as a general matter, it is working. Many of the reforms that we put in place following the S&L crisis, including prompt corrective action system, have been effective in reducing claims on the insurance funds. Nevertheless, the FDIC has identified some legitimate problems with the current system, and we should enact responsible reforms now while the system is relatively healthy.
In fact, the written testimony of today's witnesses highlights the broad agreement on most key elements of deposit insurance reform. Setting aside the issues of coverage and indexing, I would note that the agreement appears to extend to all other elements of reform. In particular, the witnesses seem to agree on two fundamental principles: First, that the FDIC has identified critical weaknesses in the current deposit insurance system that should be addressed immediately. And second, that the FDIC has set forth recommendations that indeed address these weaknesses.
I stress this broad agreement, because discussions about comprehensive deposit insurance reform tend to send a misleading signal of divisiveness. This is because the discussions often focus on the one area that lacks consensus, namely whether coverage should be increased, or at the very least indexed to keep pace with inflation.
Now in no way do I mean to minimize the importance of coverage or indexing to successful comprehensive reform. In fact, I do not believe a package is possible unless it includes elements of the coverage and indexing measures contained in the Safety Act.
In particular, I want to emphasize the importance of indexing deposit insurance to inflation. First, the real value of coverage has eroded by over half since 1980. Failure to index going forward means that the value of coverage will continue to decline, placing our community banks at a competitive disadvantage compared to large bank holding companies that currently offer more than $100,000.
Second, failure to index coverage means that the level will remain subject to political forces. The strongest opponents of a coverage adjustment point to 1980, and say that the system should not have permitted a sudden increase in coverage from $40,000 to $100,000. I would respond that if we index coverage, we take the matter out of the political arena, and put it on auto-pilot. This is a common sense reform, and I believe that it should be a prerequisite for any final reform bill.
I also believe we should focus on the right level of coverage for retirement savings. Retirement coverage merits separate discussion, and I would commend to members of this Committee the record from the Financial Institutions Subcommittee hearing that I held on November 1, 2001.
In fact, President Bush's continued emphasis on saving for retirement reinforces the notion that many retirees would like to have more than $100,000 in savings to guarantee a comfortable retirement. And those savings are critical, especially given some uncertainty about the long-term health of Social Security.
While many Americans have put those savings to work for them in a variety of investments, we have been reminded that while equity markets can provide unparalleled opportunities for economic growth, those opportunities come with volatility. Younger investors may have enough time to ride out ups and downs; however, those of us who are closer to retirement age have to make sure we have enough savings in secure investments to retire comfortably.
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 2003. For these reasons, I would urge the Committee to examine the topic of coverage for retirement savings separately.
With that, Mr. Chairman, I once again thank you for holding today's hearing, and look forward to hearing from our witnesses.