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Advocacy Alert- 10/28/2002

FDIC likely to meet on 2003 premiums November 12

FDIC Chairman Donald Powell has given many hints that he believes that a small semi-annual BIF premium in 2003 might break the logjam and pave the way for enactment of deposit insurance reform legislation during the lame duck session.

The mere fact that FDIC is unlikely to meet on the issue before November 12 adds fire to the speculation, because, at that point, the results of the election (and the fate of Sen. Tim Johnson, a key figure in the drama) will be known. So does the fact that, for the first time, the FDIC's board will have before it preliminary deposit figures from as many as 40 of the largest banks in the country, enabling FDIC staff to extrapolate a BIF ratio as of the end of the third quarter. It was barely, but safely, above 1.24 percent at the end of the second quarter.

Previously, the FDIC has been hampered by the fact that its deposit figures lag by about five months. This is because the industry is generally allowed 30 days following the end of a quarter to submit call reports, and some banks get 45 days. This time, FDIC will canvas large banks asking for their preliminary third quarter numbers. It can also influence the ratio by adding to or reducing reserves for anticipated losses in the coming year. Currently, a little more than $1 billion is set aside for losses in the BIF. Present law is clear that if the fund to insured deposits ratio is above 1.25 percent, there may be no premiums. But FDIC's board can make judgments about the ratio based on information it has available. Clearly, if there is to be a BIF premium, it would be very small, probably not more than a basis point or so during the first half of 2002. But enactment of the legislation by a lame duck Congress would likely obviate the need for a premium, given premium credits the legislation would provide.

Congress recesses for election, California delegation signs letter urging action on SBA program

In a rare display of bipartisan unity, 31 Members of the California Congressional delegation, led by Republican Darrell Issa and Democrat Lucille Roybal-Allard, have joined forces on a letter to House Speaker Dennis Hastert urging a legislative solution to a funding issue that cut the popular and effective SBA Sec. 7(a) small business loan program in half on October 1. So far, Congress has not responded, but there will be an effort to attach such a legislative fix to one of the funding bills that will make it through the Congress during the lame duck session that will begin on November 12. CBA joined forces with Issa and Roybal-Allard, following their solicitation letter with a letter from FGRC chairman Jane Netherton, and president Gary Gertz urging a California response to the problem. The letter was signed by 11 Republicans and 20 Democrats from every corner of the state.

In a related development, two powerful House Committee Chairmen, Don Manzullo (Small Business) and Jim Nussle (Budget), introduced legislation just prior to the recess that would mandate use of a less costly subsidy rate, thus restoring adequate funding for the Sec. 7(a)program.

Deal reached on terrorism bill, action expected on it and bankruptcy

In the final hours before the election recess, congressional negotiators appeared to reach agreement on a terrorism insurance bill which has been strongly pushed by the administration and President Bush directly. Terrorism insurance is also of great importance to the financial community. Disagreement about whether additional class actions for punitive damages could be brought against employers and building owners had stymied the bill until now. Under the compromise, federal funds would not be available to pay for punitive damages, but such actions would be allowed if they are consolidated in federal courts. The bill is now expected to be passed during the lame duck session in November. Also considered likely to be brought up for a vote is the long-stalled bankruptcy bill which has been passed several times (in different versions) by both Houses of Congress. House and Senate conferees worked out a settlement several weeks ago, to which pro-life members objected. It now appears that many of these members will agree to the bill coming up for a vote in the lame duck session.