WASHINGTON — The Treasury Department on Monday fired its strongest salvo yet against increasing deposit insurance coverage, and signaled that the departure of Sheila C. Bair — the agency's lead on banking issues as the assistant secretary of financial institutions — will not lead to any major policy shifts.
In blunt remarks to a group of community bankers, Treasury Under Secretary for Domestic Finance Peter R. Fisher dismissed arguments that raising coverage beyond $100,000 per account would help small banks compete against larger rivals.
"Why expand moral hazard by increasing coverage limits when doing so will do absolutely nothing to improve the competitive position of small banks vis-a-vis large banks?" he said. "This makes no sense. I suggest you look at the facts, and you will see this is a made-up issue."
His comments at an Independent Community Bankers of America meeting in Washington sparked heated exchanges with the group’s members.
"The American taxpayer is entitled to get $200,000 in insurance," said Thomas E. Hales, the president and chief executive officer of Union State Bank in Nanuet, N.Y. "Raising coverage to $200,000 would probably cost the [Bank Insurance] Fund just pennies."
Mr. Fisher dismissed the argument and noted that uninsured deposits at community banks have increased twice as quickly as those at the largest 1,000 institutions since the mid-1990s.
He also used the speech to echo policy positions laid out by Ms. Bair, who is leaving the Treasury on June 21 to teach public policy at the University of Massachusetts at Amherst.
Specifically, Mr. Fisher backed Ms. Bair's opposition to letting financial institutions join more than one Federal Home Loan bank and endorsed her signature project to create a set of semi-voluntary best practices for mortgage lenders, brokers, and traders to combat predatory lending.
Mr. Fisher may have turned up the heat on the Treasury’s long-standing opposition to increasing coverage to dissuade House Republican leaders from bringing the deposit insurance reform bill to a vote in the full House — or at least to remove the key provision that would raise coverage limits to $130,000.
Proponents of the bill consider House Majority Leader Richard K. Armey to be their primary obstacle. A spokesman refused to reveal the Texas Republican's position on the bill, but did say Rep. Armey is "listening" to the concerns of the Treasury and the Federal Reserve Board.
But in remarks to the ICBA on Sunday, House Financial Services Committee Chairman Michael G. Oxley said he remains convinced that the House would vote on the bill before it adjourns for a week's recess this month.
"We're going to go to the floor with that legislation, we hope, next week or the week after, but believe me, that bill will come to the floor," in part because of "your efforts with our leadership," the Ohio Republican said.
Federal Deposit Insurance Corp. Chairman Donald E. Powell also recently expressed confidence that the legislation would make it through the House. While acknowledging the bill faces tougher odds in the Senate, he predicted in an interview Friday that the bill would be enacted this year. "I think at the end of the day, we’ll get there."
