S. HRG. 111–159 CURRENT ISSUES IN DEPOSIT INSURANCE HEARING BEFORE THE SUBCOMMITTE ON FINANCIAL INSTITUTIONS OF THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION ON STRENGTHENING DEPOSIT INSURANCE AND REVIEWING INCREASING THE FDIC AND NCUA’S BORROWING AUTHORITY FROM TREASURY MARCH 19, 2009 Printed for the use of the Committee on Banking, Housing, and Urban Affairs ( Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html U.S. GOVERNMENT PRINTING OFFICE 53–566 PDF WASHINGTON : 2009 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 16:30 Dec 04, 2009 Jkt 000000 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 S:\DOCS\53566.TXT SHERYL COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS CHRISTOPHER J. DODD, Connecticut, Chairman TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama JACK REED, Rhode Island ROBERT F. BENNETT, Utah CHARLES E. SCHUMER, New York JIM BUNNING, Kentucky EVAN BAYH, Indiana MIKE CRAPO, Idaho ROBERT MENENDEZ, New Jersey MEL MARTINEZ, Florida DANIEL K. AKAKA, Hawaii BOB CORKER, Tennessee SHERROD BROWN, Ohio JIM DEMINT, South Carolina JON TESTER, Montana DAVID VITTER, Louisiana HERB KOHL, Wisconsin MIKE JOHANNS, Nebraska MARK R. WARNER, Virginia KAY BAILEY HUTCHISON, Texas JEFF MERKLEY, Oregon MICHAEL F. BENNET, Colorado COLIN MCGINNIS, Acting Staff Director WILLIAM D. DUHNKE, Republican Staff Director and Counsel DAWN RATLIFF, Chief Clerk DEVIN HARTLEY, Hearing Clerk SHELVIN SIMMONS, IT Director JIM CROWELL, Editor SUBCOMMITTEE ON FINANCIAL INSTITUTIONS TIM JOHNSON, South Dakota, Chairman MIKE CRAPO, Idaho, Ranking Member JACK REED, Rhode Island ROBERT F. BENNETT, Utah CHARLES E. SCHUMER, New York KAY BAILEY HUTCHISON, Texas EVAN BAYH, Indiana JIM BUNNING, Kentucky ROBERT MENENDEZ, New Jersey MEL MARTINEZ, Florida DANIEL K. AKAKA, Hawaii BOB CORKER, Tennessee JON TESTER, Montana JIM DEMINT, South Carolina HERB KOHL, Wisconsin JEFF MERKLEY, Oregon MICHAEL F. BENNET, Colorado LAURA SWANSON, Staff Director GREGG RICHARD, Republican Staff Director (II) VerDate Nov 24 2008 16:30 Dec 04, 2009 Jkt 000000 PO 00000 Frm 00002 Fmt 0486 Sfmt 0486 S:\DOCS\53566.TXT SHERYL C O N T E N T S THURSDAY, MARCH 19, 2009 Page Opening statement of Senator Johnson ................................................................. 1 Prepared statement .......................................................................................... 26 Opening statements, comments, or prepared statements of: Senator Crapo ................................................................................................... 1 WITNESSES Art Murton, Director, Division of Insurance and Research, Federal Deposit Insurance Corporation ......................................................................................... 2 Prepared statement .......................................................................................... 26 David M. Marquis, Executive Director, National Credit Union Administration 4 Prepared statement .......................................................................................... 30 William Grant, Chairman and CEO, First United Bank and Trust, on behalf of the American Bankers Association ................................................................. 13 Prepared statement .......................................................................................... 38 Terry West, President and CEO, Vystar Credit Union, on behalf of the Credit Union National Association ................................................................................. 14 Prepared statement .......................................................................................... 42 Stephen J. Verdier, Senior Vice President and Director, Congressional Rela- tions Group, on behalf of the Independent Community Bankers of America . 16 Prepared statement .......................................................................................... 46 David J. Wright, CEO, Services Center Federal Credit Union, on behalf of the National Association of Federal Credit Unions ...................................... 18 Prepared statement .......................................................................................... 51 (III) VerDate Nov 24 2008 16:30 Dec 04, 2009 Jkt 000000 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 S:\DOCS\53566.TXT SHERYL VerDate Nov 24 2008 16:30 Dec 04, 2009 Jkt 000000 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 S:\DOCS\53566.TXT SHERYL CURRENT ISSUES IN DEPOSIT INSURANCE THURSDAY, MARCH 19, 2009 U.S. SENATE, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. The Subcommittee met at 2:05 p.m., in room SD–538, Dirksen Senate Office Building, Senator Tim Johnson (Chairman of the Subcommittee) presiding. OPENING STATEMENT OF SENATOR TIM JOHNSON Senator JOHNSON. As we all know, the economic landscape has undergone significant change since the Committee last looked at deposit insurance. In these times of economic instability, it is in- creasingly important that we have a strong and stable deposit in- surance fund and that our regulators have the tools they need to wind down failed institutions while at the same time guaranteeing that Americans’ savings and retirement remain safe. I am pleased to hold this hearing today to take a closer look at deposit insurance issues that the FDIC, the National Credit Union Administration, and our Nation’s banks and credit unions currently face. I would also like to welcome our panel of witnesses, and thank them for their time and for their thoughtful testimony. We are waiting for Ranking Member Senator Crapo to show up. I have some urgency in that Harry Reid has announced that we will have a vote around 4 o’clock, and so we intend to wrap up about then. I would like to welcome our first panel of witnesses. Our first witness is Mr. Art Murton, Director of the Division of Insurance and Research at the Federal Deposit Insurance Corporation. Wel- come. Our second witness is Mr. David Marquis. Mr. Marquis is the Executive Director of the National Credit Union Administration and the former head of NCUA’s Examination and Insurance Divi- sion. Welcome. I will ask that the witnesses please limit their testimony to as close to 5 minutes as possible. Your full statement and any addi- tional materials you may have will be entered into the record. Mr. Crapo, do you have any comments? STATEMENT OF SENATOR MIKE CRAPO Senator CRAPO. Thank you very much, Mr. Chairman. Sorry for being late. I am out of breath from running to get here. (1) VerDate Nov 24 2008 16:30 Dec 04, 2009 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\DOCS\53566.TXT SHERYL 2 First of all, I want to welcome our witnesses and everyone here today. Thank you, Mr. Chairman, for holding this hearing. Looking at today’s economic climate and the threats that face us in the financial industry, we have to consider the possibility that we could have one or more major financial institution failures. This is not an acknowledgment that it will happen, but it is an acknowl- edgment that there is a threat or a risk present. The FDIC and the NCUA protect against the loss of insured de- posits if a Federal insured bank, savings association, or a credit union fails. It is important to note that the depositors who have ac- counts at failed banks or credit unions are made whole by the in- surance fund at either FDIC or NCUA that banks and credit unions pay into. It is essential that this remains the case, and I am going to oppose any efforts to change that. In order to make sure that the FDIC and the NCUA can imme- diately access the necessary resources to resolve failing banks and credit unions and provide timely protection to insure depositors, I support increasing the borrowing authority of both the FDIC and the NCUA. I am a cosponsor of S. 541 with Senator Dodd and others that would permanently increase the FDIC authority to borrow from the Treasury, increase that authority from $30 billion to $100 billion. I note that it has been a long time since that borrowing level has been increased. In addition, the bill would temporarily authorize an increase in borrowing authority of about $100 billion, but not to exceed $500 billion, based on a process that would require the concurrence of the FDIC, the Federal Reserve Board, and the Treasury Depart- ment, in consultation with the President. I look forward to hearing today from our witnesses about what would be the appropriate parallel authority to provide to NCUA. It is my hope that we will decide not to try to add controversial items like the bankruptcy cram-down provisions or others into this effort, which will only delay our ability to provide the additional nec- essary resources to address future contingencies. Again, Mr. Chairman, I appreciate your holding this hearing. I look forward to working with you and hearing from our witnesses. Senator JOHNSON. Mr. Murton, please begin. STATEMENT OF ART MURTON, DIRECTOR, DIVISION OF IN- SURANCE AND RESEARCH, FEDERAL DEPOSIT INSURANCE CORPORATION Mr. MURTON. Thank you. Chairman Johnson and Ranking Mem- ber Crapo, I appreciate the opportunity to testify today on behalf of the FDIC. By protecting deposits, the FDIC protects the most important source of funding available to banks—funds that can be used to provide credit to communities and the broader