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Advocacy Alert- 09/16/2002

BIF Ratio rises to 1.26 percent; 2003 premium no longer "a certainty"

To the surprise of many, the BIF ratio rose by some three basis points to 1.26 percent as of the end of the second quarter according to call report data released by the FDIC on Thursday. The SAIF ratio rose by two full basis points, from 1.36 percent to 1.38 percent, comfortably above the 1.25 percent required minimum.

The rise in the ratio was caused by a very slight reduction in insured deposits and a larger than expected increase in the fund itself. Insured BIF deposits, which rose by $56 billion in the first quarter of 2002, actually fell by about $2 billion during the second quarter. The nearly half a billion dollar increase in the Fund was attributed to increased interest income and to the sale of securities held by the Fund. Despite an American Banker story on Wednesday that FDIC Chairman Don Powell said a small premium for BIF was 75 percent likely in 2003, it is no longer as likely as it was before this unexpected increase in the BIF ratio became public.

FDIC could take actions in the next seven weeks to lower the ratio - by setting aside additional reserves or by obtaining insured deposit data from other sources - such as weekly deposit data published by the Fed. Or the FDIC could simply decide premiums will be needed to maintain the 1.25 percent ratio during 2003. But the statutory mandate to impose premiums only applies if the fund is found to be below 1.25 percent, and as of now, it is not.

CBA Mutual Fund Notice bill signed by Governor Davis

One of CBA's sponsored bills, AB 2126 was signed into law by Governor Davis last week. The bill allows trustees greater flexibility when fulfilling their fiduciary duties by providing timely disclosure of all fees and rates being charges to beneficiaries. The bill was suggested by CBA's Trust State Government Affairs subcommittee of the CBA Trust and Investment Services Committee.

Bankruptcy reform may be delayed until lame duck session

After being passed by both Houses of Congress twice in the past four years, and on the even of what was thought to be certain passage, a final vote on bankruptcy reform appears to be delayed again.

House Republicans are worried about a provision in the bill that would deny bankruptcy protection to anyone seeking to avoid legal liability for denying access to or damaging an abortion facility. The bill has run into furious objections from right-to-life groups. Some 20 or so conservatives have indicated they would not be able to vote for the bill, hardly enough to defeat it. But leadership evidently does not want to force Members to vote on something so flammable before the election. A lame duck session now appears almost inevitable. Now, the House leadership, which earlier announced that a vote was going to take place this week now seems to be leaning toward delaying a final vote on the bill until after the November election, an indication of how close GOP leaders feel the Congressional election is going to be.

Walmart bill before Governor Davis

The bill that would prohibit commercial enterprises from acquiring industrial banks is currently before the governor. The legislation was brought on by WalMart's attempt to buy an industrial bank in Orange County. In testimony before the Assembly Banking Committee, CBA confirmed its neutral position on the bill but we went on record as supporting the closing of the unitary thrift loophole with the adoption of the Gramm-Leach-Bliley Act in Congress. An update on whether or not Governor Davis vetoes the bill or allows it to pass into law will appear in upcoming issues of Advocacy Alert or Current Events.

House and Senate conferees struggle to find terrorism insurance compromise

Daily press reports have chronicled Congressional efforts to reach a compromise on terrorism insurance in the wake of the first anniversary of 9/11. There are major differences between the bills passed by the House and Senate. The House bill requires eventual industry repayment of any funds advanced by the government to pay claims related to a terrorist attack, and also would not allow recovery of additional amounts from building owners or employers in the case of a terrorist attack. The Senate bill does not preclude private legal actions to recover damages over and above what the disaster coverage provides, and it does not require industry repayment. But little headway has been made and hopes to reach an accord by 9/11/02 were obviously not achieved. Nonetheless, Congress is expected to complete action on the legislation before the election.