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Advocacy Alert- 03/18/2002

Assembly Member Zettel gets appointment

Assembly Member Charlene Zettel (R-Poway) was appointed to the position of Public Interest Director at the San Francisco Federal Home Loan Bank. Zettel recently lost her bid for the State Senate seat in District 36 when she lost the primary election to Dennis Hollingsworth by nearly nine percentage points. Thirty-six such appointments to the FHLB were made across the country.

Financial Services Committee left many issues after House panel approves FDIC reform

The House Financial Institutions Subcommittee last week approved legislation that would increase the general deposit ceiling to $130,000; merge BIF and SAIF; replace the so-called 1.25 percent cliff with a provision that delegates authority to the FDIC to set a reserve target within a range of 1.15 and 1.4 percent, and; provide a series of discretionary and mandatory dividends of excess premiums to assure that the FDIC does not use its authority to impose premiums by simply raising the ratio. The legislation also provides what is called a transitional credit to banks which paid premiums in the 1990’s not to exceed .012 percent of the institution’s domestic deposit base at the end of 2001.

One provision in the bill which drew fire requires the FDIC to include general reserves as part of the insurance fund (the numerator) for purposes of calculating the reserve ratio. The FDIC calculates that at the end of 2001 the combined BIF-SAIF fund was 1.3 percent but adding back general reserves of $1.75 billion at the end of 2001, the fund would gain 7 basis points. Another provision that was the subject of sharp debate would provide a massive increase in insurance for in-state municipal deposits, to as much as $5 million per account. The FDIC estimates that based on present data, the provision would slice 4 basis points out of the ratio. This provision is likely to be revisited; because support for it is not wide spread across the country.

The legislation does appear headed for passage in the House this year, but the Senate is another story although Majority Leader Daschle told a group this Wednesday that he views the odds at better than 50 – 50 . If the legislation is to advance it would require near unanimous support from the banking industry, which is anything but unified now. Generally, large banks do not support increases in the deposit ceiling while small ones do. Many scoff at the notion that premiums any where near 23 basis points would be needed to restore BIF to 1.25 percent even if it does slip below that number at some point. Many bankers also believe that the period of large inflows is over, and the rate of growth did drop in the 4th quarter.

FHFB approves first capital plan

The Federal Housing Finance Board (FHFB) approved the Seattle Bank capital plan, the first of 12 regional capital plans it must consider. FHFB insisted that Seattle amend its plan so that the bank cannot use excess capital for anything other than short term assets – in effect not permitting very large users of the bank to use excess capital to apply to their own transactions. The San Francisco Bank wrote in its comment letter “that members should provide all of the capital for their activity with their bank.” It would appear that the Board has accepted San Francisco’s rationale.

Korsmo supports securitizing purchased mortgages

In a speech delivered last week, FHFB chairman John Korsmo expressed support for the notion that Federal Home Loan Banks should be able to securitize mortgages they purchase under programs like Mortgage Partnership (MPF) operated by the Chicago Bank. Allowing Home Loan Banks to securitize mortgages they purchase would very substantially lower the capital they would be required to hold, but it would also make programs like MPF more competitive with Fannie and Freddie. Korsmo also indicated that the Board would address the highly controversial multiple membership issue by the end of the year.

Hearings on regulatory relief package begin

Determined to pass a regulatory relief bill to compensate the banking industry for the added costs heaped on it under the record keeping and reporting requirements imposed by the Patriot Act, House Financial Services Committee Chairman Mike Oxley has introduced a regulatory relief bill that few expect will proceed beyond the House this year. The first round of hearings was scheduled on Thursday, March 14. Two controversial provisions have been deleted – one which would have raised the 10 percent limit of total US deposits that any one bank may control (by adding credit union and foreign bank US deposits into the base), and the other to help Sun Trust Bank recoup FDIC premiums paid in 1996 it claims were improperly assessed. One highly controversial provision still in the bill would make uninsured state chartered credit unions eligible to join Federal Home Loan Banks. Otherwise, the bill contains a variety of provisions designed to lower the cost and complexity of completing various types of banking and regulatory transactions.