Chairman Greenspan, Undersecretary Fisher, Chairman Powell, Comptroller Hawke, Director Gilleran, good morning. Thank you for coming today.
The purpose of this hearing is to discuss the present condition of the Federal Deposit Insurance System and to consider reforms which would make it more effective.
Deposit insurance has been a crucial part of the overall banking regulatory structure for almost 70 years. It has functioned well in protecting the deposits of millions of Americans. In turn, by providing this protection, it has virtually eliminated the bank panic phenomenon, thus serving to stabilize the banking system and the overall economy.
These positives aside, however, providing deposit insurance creates the real possibility that taxpayers could be forced to bear significant liabilities. This is due to the fact that the system operates by putting the full faith and credit of the Federal government behind every insured deposit.
Let's be clear on this point - "full faith and credit" of the Federal government means "full and direct access" to the taxpayer's wallet. Those of us who participated in the clean-up of the savings and loan mess know first hand the potential magnitude of this cost to taxpayers.
Such are the tensions within the deposit insurance system: it stands to protect individual depositors, thereby protecting banks and the overall economy. But, this can only be achieved by exposing taxpayers to considerable liabilities.
I believe it is our responsibility to appreciate and maintain the appropriate balance between these forces, should we entertain any reforms of the system.
In this regard, I believe the FDIC has raised some reform proposals that appropriately achieve this balance. For example: I support building more flexibility into the system to provide regulators greater ability to work with, rather than against, the economic cycle; I think that developing a more finely tuned, truly risk-based methodology for pricing insurance would be a positive development because, under such a system, the cost of insurance would be more closely linked to risks of claims against the fund; the system would also be better served if every institution holding insured deposits actually paid some amount for the coverage provided; and, it seems the factors which led to the creation of separate banking and savings insurance funds no longer exist and greater efficiencies could be achieved by combining the funds.
It is my hope that the witnesses can provide more comprehensive analysis regarding these reforms proposals.
I would like to close by again thanking the panelists for appearing today and by pointing out that a narrow window of opportunity is presently open - the insurance system is basically sound and the banking industry is in relatively good condition.
Working together, I think we can seize this opportunity and move forward common-sense reforms - reforms which protect depositors and taxpayers and ultimately make a good system better.
I look forward to hearing from our witnesses.