Panel II Of A Hearing Of The Financial Institutions Subcommittee Of The Senate Committee On Banking, Housing And Urban Affairs - Current Issues In Deposit Insurance

Statement

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SEN. JOHNSON: I would now like to welcome our second panel of witnesses to the table. Thank you for being here today to discuss such a timely and important matter.

(Off mike consultation.)

Our first witness is Mr. William Grant. Mr. Grant is chairman and CEO of First United Bank & Trust in Oakland, Maryland. He is here today on behalf of the American Bankers Association.

Welcome.

Our second witness is Mr. Terry West, president and CEO of VyStar Credit Union in Jacksonville, Florida. He is here today on behalf of the Credit Union National Association.

Welcome.

Our third witness is Mr. Steve Verdier, senior vice president, Independent Committee to Bankers of America.

Welcome.

And last, Mr. David Wright. I have known Mr. Wright for many years. He is CEO of Services Center Federal Credit Unions, which serves the communities of Yankton, Parkston and Springfield in South Dakota. Thank you for being here today on behalf of the National Association of Federal Credit Unions, and thank you for traveling all this way.

Mr. Grant, please begin.

MR. GRANT: Chairman Johnson, Ranking Member Crapo and other members of the subcommittee, First United Bank & Trust is a 108-year- old community bank headquartered in Oakland, Maryland, a rural town in Appalachia with a population of about 2,000. We have assets of about $1.6 billion and serve four counties in Maryland and four counties in West Virginia.

The ABA strongly supports, with the sponsorship of Chairman Dodd, the Depositor Protection Act of 2009, S. 541. It would provide the FDIC with the needed funds to manage the cash flows in handling bank failures, and more importantly, this added flexibility would allow the FDIC to significantly reduce the special assessment on the industry that has been proposed for June 30th, 2009.

Let me be very clear: The banking industry fully supports a strong FDIC fund. We know how important deposit insurance is to our customers, and banks have always paid the full cost of the FDIC since its inception in 1933, and we will honor the obligations to support it today.

How this is done, however, is very important to every bank in all communities across the country. The special assessment, as currently proposed, would pull $15 billion from banks in the second quarter of this year. This would be on top of the regular quarterly payments of about $4 billion. Even at half of that cost -- and that is what the FDIC has suggested is likely if S. 541 were enacted -- there would still be a substantial burden on banks at the very time we are making every effort to get credit into our local communities.

The money to pay such high assessments cannot come out of thin air. It is very important, therefore, to lower the up-front costs and to spread the obligation to FDIC over time. Happily, S. 541 helps to accomplish this. For my bank, First United, the proposed special assessment would cost $2.5 million, to be paid all in the second quarter of 2009. This will reduce our bank's capital, which is necessary to support lending, by about $1.6 million. This very high and unexpected cost is in addition to the regular risk-based premium, which will total about $1.7 million in 2009. First United is not alone. All banks face similar challenges.

I do want to be very clear in saying that First United Bank & Trust will meet its obligations to the FDIC regardless of whether S. 541 is enacted. In doing this, however, we would encounter limits on our ability to lend in our communities, support local functions and charities and to provide jobs.

In fact, the special assessment is completely at odds with the bank's efforts to help our communities rebuild from this terrible economic downturn. This assessment would also make it more expensive to raise new deposits, and fewer deposits means less lending. The subsequent reduction in earnings will make it harder to build capital when it is needed the very most. In places where the economic conditions are even more severe, this added burden will make new lending practically impossible. Some banks have reported that they may have to consider reducing bank staff in order to pay this new additional assessment.

It is critical to consider alternatives that would reduce this burden. S. 541 does this by enhancing the FDIC's ability to draw on its line of credit. Importantly, the FDIC does not intend to use this line of credit at all unless the economy deteriorates even more dramatically than is anticipated. And if it does draw on the line, it is a borrowing that will be repaid by the banking industry with interest. This obligation of our industry is often lost in the discussions about government support and is frequently confused with taxpayer losses.

America's banks are prepared to do our part and pay for 100 percent of the cost of FDIC insurance. The only issue is one of timing. S. 541 will be very helpful in providing the industry with the time needed to fund the FDIC insurance fund while enabling the industry to meet its needs within the communities. Therefore, the ABA fully supports S. 541 and urges quick action to enact it into law.

Mr. Chairman, I'd be happy to answer any questions that you or the subcommittee might have. Thank you.

SEN. JOHNSON: Mr. West?

MR. WEST: Thank you, Chairman Johnson and Ranking Member Crapo.

I appreciate the opportunity to be before you this afternoon and represent the Credit Union National Association. I am president and CEO of VyStar Credit Union, headquartered in Jacksonville, Florida. We were founded in 1952 with 12 people and $60 to serve members, provide them a place to borrow money and save money. I'm proud that 57 years later we still do that every day.

We today serve 350,000 members and they have $3.8 billion in assets in their credit union. We provide a full range of services to those members. Last year alone we loaned out over $300 million in mortgage loans for them.

And Senator Crapo, I heard your comments about lending. We think it's important. Today we have over $200 million in our mortgage loan pipeline that we're hoping to close in the next couple of months. Most of that are members refinancing mortgages from other institutions at lower rates to our institution. We also pay up to $5,000 in closing costs for those members so that they'll have a better opportunity to get into those loans.

We also serve about 9,000 businesses in the area. Many of them have their deposit accounts with us because we charge them less fees. They also have small business loans with us.

I also chair CUNA's task force on corporate credit unions that Mr. Marquis referenced earlier and our charge in that task force has been to look at the corporate credit union structure and advise NCUA and hopefully Congress and hopefully the Treasury on how to properly restructure them in the future.

A couple of things I would like to mention as we talk today -- and as we said, this is a very important and timely meeting -- the banks currently have some pending bills to increase the deposit coverage up to $250,000. They have pending bills to rebuild their FDIC insurance fund, which we very much agree. At present they have five years to rebuild their fund, and as Mr. Marquis said, we have one year to rebuild our fund. According to what we've read, FDIC recently has extended that to seven years and they're asking for eight years. We would ask that the credit union movement have at least eight years to rebuild our fund as well. And Mr. Marquis had mentioned five. Five would help; eight would be better.

We also recognize that FDIC's asked for increased borrowing authority. We as credit unions are asking for assistance as well. In general, we're operating well. I'm proud to say we had net income last year and we're in Florida, one of the toughest states in the nation economically right now.

We are asking that we also have $250,000 in insurance coverage. I talk with members and it may be a surprise we have 350,000. I talk with them daily and weekly; that's how I run our credit union. They're constantly asking us will this coverage be permanent. And they think it needs to be permanent and I think it needs to be permanent because every day they're wanting to feel more secure in this economic environment. They come in not worried about their credit union but worried about the money they've been working hard to save. And anything we can do to give them comfort during this environment I think is important.

Mr. Marquis talked about the central liquidity fund or central lending fund. We also believe that natural person credit unions and corporate credit unions should be able to borrow from that and use it as a source of capital. And Mr. Marquis talked about the restructuring that would need to occur in how it's set up; we think that would provide considerable relief to the credit union movement.

We also support NCUA having the ability to increase their borrowing from $100 million to $6 billion during this, and we also support them having the same authority that FDIC has today in systemic risk issues. Today NCUA does not have that authority. We also support them having the authority during systemic risk issues to borrow up to $30 billion.

Mr. Marquis touched on the corporate credit union issue and as chairing that committee, I'll give you a little more insight into that. U.S. Central is the largest corporate credit union in the nation. Earlier this year, late 2008, they had to experience an other than temporarily impaired write-down of $1.2 billion for investments that they purchased that were AAA-rated because of mark-to-market issues. The resulting issue in that, as Mr. Marquis addressed, brought the share insurance fund down to .49 percent to write down that amount of money to boost their capital with $1 billion and also to cover with a guarantee the uninsured deposits at corporate credit unions.

The impact to credit unions on average will be 81 basis points of the insured shares, 58 basis points on their net worth. And as Mr. Marquis said, we have lots of net worth. Ours at VyStar ended the year at about 9.23 percent. When we subtract 58 basis points from that  and I have 56 and 58 in spaces; we aren't exactly sure -- it'll bring it down to about 8.5 percent. We still have plenty of net worth, but as we all address, that's what we need during this environment.

What that will do, to put it more specifically, when this fee is assessed this year, about 75 percent of the credit unions in the nation will be operating in the red. That's going to cause undue concern for our members even though we can afford to take it out of our net worth.

So we're asking for any way that the Senate and NCUA could have the authority to spread this assessment out for a longer period of time. We actually believe that NCUA under the Federal Credit Union Act has some implied authority to spread a portion of this assessment out over a longer than one-year period of time, but it's not explicit, so we're asking for two things: could we have explicit authority in the Federal Credit Union Act to spread it out over five years if the banks have that or eight years if the banks get that, and also to encourage NCUA to take any actions they can under the implied authority today to go ahead and take actions.

And Senator Crapo, you talked about the sense of urgency. We think it's there.

Also, we would ask that the central liquidity fund be expanded to corporate credit unions so that they could borrow and use it as capital.

And finally we would ask -- we would hope to never use it -- there are no funds allocated for credit unions in the Troubled Asset Relief Program, and we would ask that at least some funds be set aside as a backstop measure if the economy continues to worsen. We would hope to never use them but at least to know that the funds are there if we ever need them.

And then finally we would ask any pressure that the Senate could put on FASB to work on marktomarket issues. That seems to be part of what we're all dealing with today. I know if I sell my house tomorrow it's worth whatever it's purchased for. If I sell it in five years it's worth what it's purchased for.

So I appreciate greatly the opportunity to talk with you. I'll be happy to answer any questions you have.

MR. VERDIER: Chairman Johnson, Ranking Member Crapo, I'm Steven Verdier, the senior vice president and director of congressional relations for the Independent Community Bankers of America. I'm pleased to represent ICBA and its 5,000 community bank members at this important hearing.

Federal deposit insurance has helped stabilize our nation's banking system for 75 years. It promotes public confidence by providing safe and secure depositories for both businesses and consumers. The deposit insurance system also protects the funding base for community banks.

Despite the challenges that they face, the community bank segment of the financial system is working and working well. ICBA members are open for business, making loans and are ready to help all Americans weather these difficult times. But I must also report that community bankers are angry.

Almost every Monday morning they wake up to news that the government has bailed out yet another too-big-to-fail institution. On Saturdays they hear that the FDIC has summarily closed one or two too- small-to-save institutions. And now the FDIC has proposed a huge special premium to pay for losses imposed by large institutions. This assessment, and the other inequities in the deposit insurance system, will damage community banks and the customers and small businesses that our members serve.

ICBA believes it is urgent that Congress act quickly on several critical deposit insurance reforms. Congress should require the FDIC to impose a systemic-risk premium against the too-big-to-fail institutions to compensate the taxpayers and the FDIC for the risks they impose.

The depositors of the too big to fail banks have unlimited deposit insurance coverage, giving those banks an unfair advantage.

Congress should also direct the FDIC to make the assessment base more equitable. Community banks pay approximately 30 percent of FDIC premiums, although they hold only about 20 percent of bank assets. They fund themselves 85 to 90 percent with domestic deposits, while banks with more than ($)10 billion in assets use domestic deposits for only 52 percent of their funding. So while community banks pay assessments on nearly their entire balance sheet, large banks pay on only half. It would be fairer if the FDIC were to use assets minus capital as its assessment base.

Congress should immediately increase the FDIC's borrowing authority as provided in S. 541. According to FDIC Chairman Bair, the increased borrowing authority would allow the FDIC to reduce this special assessment to as much as one-half the proposed rate.

ICBA opposes the special assessment and my written statement suggests viable alternatives, but unless Congress quickly increases its borrowing authority, the FDIC will likely vote to impose the full special assessment -- perhaps within weeks. The special assessment will have real effects on our members' communities because community banks' earnings will fall drastically.

A recent ICBA survey reveals the FDIC's estimate of this effect is much too low. Thirty-two percent of community banks tell us the special assessment will consume 16 to 25 percent of their 2009 earnings. Seventeen percent estimate it will consume 26 to 40 percent. This means that a small bank with ($)100 million in deposits will pay $200,000. This is unfair.

Community banks did not participate in the risky practices engaged in by large Wall Street institutions that led to the economic crisis, yet they are being assessed to pay for them. Their employees, customers and communities will all suffer.

ICBA remains committed to the principle of an industry-funded FDIC. Under S. 541 or the other proposals we suggest, the FDIC will still be industry-funded, but we could spread the cost over time. The proposal to make permanent the increase in deposit insurance coverage from ($)100,000 to $200,000 is also urgent. The clock is already ticking on the CD market. Without congressional action, coverage on a long-term CD will revert to $100,000 as of December 31st.

ICBA also urges Congress to make permanent the unlimited coverage for transaction accounts, which is now temporarily provided by the FDIC. Both this program and the increase to $250,000 have not only bolstered depositor confidence but have also helped community banks compete for deposits against the too-big-to-fail banks and the money market mutual funds. The additional coverage has helped community banks be part of the solution to the credit crisis.

In conclusion, ICBA urges Congress to act quickly to shore up the FDIC and address the inequities in the deposit insurance system. The too-big-to-fail banks should finally pay their fair share and community bank depositors should continue to have the coverage they're depending on in this troubled time.

Thank you, Mr. Chairman.

MR. WRIGHT: Good afternoon, Chairman Johnson, Ranking Member Crapo and members of the subcommittee. My name is Dave Wright and I'm testifying today on behalf of the National Association of Federal Credit Unions, NAFCU. For the last 33 years I've been the CEO of Services Center Federal Credit Union, headquartered in Yankton, South Dakota. Services Center is a low-income-designated credit union, operating in six counties -- four counties in South Dakota and two in Nebraska. Services Center has some 6,200 members and assets of $37.5 million.

I am pleased to share with the subcommittee NAFCU's assessment of how the National Credit Union Share Insurance Fund -- "the fund" -- is structured and our thoughts on current issues in deposit insurance. NAFCU believes it is imperative that there be parity in the coverage levels between the FDIC and the Share Insurance Fund. We believe that an aspect of this parity has to include the ability of NCUA to have the authority it needs to take actions to maintain the stability of the fund.

As part of the economic -- Emergency Economic Stabilization Act, Congress increased the coverage on FDIC and NCUSIF-insured accounts to $250,000 through December 31st, 2009. NAFCU urges the Senate to enact legislation to permanently extend this increase.

While credit unions have fared better than most financial institutions in these turbulent economic times, many have been impacted, through no fault of their own, by the current economic environment. In particular, the corporate credit union system has felt the biggest impact.

On January 28th, the NCUA board announced a corporate credit union stabilization plan that would have the fund provide a guarantee to uninsured shares at corporate credit unions. The resulting impact on the fund will be approximately $4.7 billion, dropping the fund's equity ratio from the current 1.28 percent to an estimated 0.49 percent. Because credit unions follow GAAP, there was an immediate impairment to the 1 percent deposit. Federally insured credit unions had to recognize this impairment by setting aside enough money in a contingent liability account to bring the deposit at the fund back to a 1 percent level.

The Federal Credit Union Act requires NCUA to assess a premium when the fund's equity ratio drops below 1.2 percent. That premium assessment must occur before the end of 2009 and NCUA intends to bring the fund's equity ratio up to 1.3 percent by assessing a premium of 0.3 percent later this year. The consequence is that over 5,350 federally insured credit unions will be in the red in 2009 and a number of them could face potential additional prompt corrective action concerns.

NAFCU urges the Senate to enact a change to the Federal Credit Union Act to establish a restoration plan period for the fund. H.R. 1106 included such an amendment that would extend the repayment period over five years.

NAFCU also urges the Senate to provide the fund an increase in borrowing authority from the Treasury Department. This change is long overdue since the current level of $100 million was established in 1971 and has not been modified for the growth of credit unions and their members' savings over time. H.R. 1106 would increase the borrowing authority to $6 billion, and we support NCUA's request for emergency authority up to $30 billion.

NAFCU believes that NCUA and Congress should work to find additional ways to help stabilize the corporate credit union system outside of using the fund. In particular, NAFCU supports an amendment to the Federal Credit Union Act which would allow NCUA to use funds from the Central Liquidity Facility directly to help the liquidity and capital needs of all credit unions, including corporate credit unions. This change, if coupled with some form of flexibility on OTTI accounting, would go a long way towards helping credit unions. We would welcome the opportunity to work with the committee to address this issue.

In conclusion, NAFCU continues to support an independent fund. Furthermore, we believe Congress must make the temporary increase in deposit insurance coverage permanent. Actions by the NCUA to help stabilize the corporate credit union system using the fund threaten to put a strain on natural-person credit unions. We believe legislative relief in the form of extending the repayment time, increasing the borrowing authority of the fund and modification of the Federal Credit Union Act as it relates to the CLF are all steps that will help the continued stability of the fund.

Thank you for the opportunity to appear before the subcommittee today. I welcome any questions you may have.

SEN. JOHNSON: Mr. Wright, in your testimony you propose allowing corporate credit unions access to the central lending facility and making the central lending facility available for capital as well as liquidity. How does this benefit the natural-person credit unions you represent? Are there risks associated with giving corporate credit unions this authority?

MR. WRIGHT: I believe that the corporate credit unions need the access to the fund to be able to borrow for capital purposes. Their capital has been severely affected by the economic turbulence that we're currently experiencing, and without the ability to borrow we've had to kind of patch together, if you will, a system whereby NCUA loaned money to natural-person credit unions, my credit union included, then we turned around and we invested this in the corporate credit unions.

Again, I think that there's a better way to do this and I think the better way is to be able to have the funds go directly from the CLF to the corporate credit unions.

SEN. JOHNSON: Mr. West, in your testimony you asked for the systemic risk authority on a similar basis as that provided to FDIC. Can you expand on why you believe the credit union regulator needs this authority?

MR. WEST: As we shared earlier, the credit union environment in general is okay right now. What we are concerned about is if the economy continues to worsen. And we certainly see one or two credit unions here or there that may pose systemic risk to the credit union industry, and we feel like our regulator should have whatever authority it needs to take care of those situations, which would be on a limited basis.

And the concern we have is they just do not have that authority at present.

SEN. JOHNSON: Mr. Grant and Mr. Verdier, both of you indicated that you opposed the special assessment announced by the FDIC in (sic) February 27. As a member from a state with many community banks, what impact will it have on institutions you represent? Do you have alternative proposals to increase the DIF while not negatively affecting your institutions, and do you think the FDIC coverage should be applied differently to banks that engage in more risky activities? Should the size of the institution determine the cost and type of insurance coverage?

Mr. Grant?

MR. GRANT: Again, Mr. Chairman, we firmly support a bank industry-funded FDIC program. There are already steps under the most recent legislation that vary the premiums based upon the risk that the institution undertakes. We believe those to be adequate.

And again, with the special assessment, we certainly recognize the need to restore the fund to its appropriate levels. Our concern is, again, as we mentioned in the testimony, with the timing, bringing all that special assessment into one year. We would much prefer, Mr. Chairman, to see that spread out over a longer period of time. And S. 541 allows the flexibility to the FDIC to make that a reality.

SEN. JOHNSON: Do you think the FDIC coverage is adequate to apply to banks that engage in more risky activities? Is that adequate?

MR. GRANT: I believe, Mr. Chairman, that the risk-rated premium system that they have put together is adequate.

SEN. JOHNSON: Mr. Verdier?

MR. VERDIER: No, we don't think that the premium system as it exists now is adequate to adjust for risk and so we are advocating a broader assessment base to cover the larger banks, as I indicated in our testimony, and that furthermore we've recommended and earlier this week recommended that any bank that is affiliated with a too-big-to- fail financial services company should also pay a special systemic- risk fee into the deposit insurance fund. So those two additions we think would go a long way to leveling that disparity that we already see.

And you asked earlier about the potential effects on a community bank and its community and customers of the special assessment, and I gave that one example, the $200,000 that would not -- you know, that would be going out of a community bank. And I think you just have to look at it as a small-business owner and say well, you know, if a small business in effect has a tax increase of $200,000, what does that mean?

Well, maybe they don't hire people. Maybe they don't open up another branch if the bank is large enough to be thinking of another branch. You know, maybe they don't make as many loans as they were going to make. Maybe the tellers don't get the same kind of pay increase that they were hoping for. And maybe, you know, local investors don't receive dividends and that means that money is again taken out of the local community.

And so the effects would differ from bank to bank, but I think they would be substantial when you take it throughout the country, the $15 billion that would be taken out. It's, you know, in effect a tax increase on small towns and communities in your state and around the country.

SEN. JOHNSON: Mr. Crapo?

SEN. CRAPO: Thank you very much, Mr. Chairman.

My first question I'm just going to ask generally to the panel and I really don't need anything more than just an expression of assent or disagreement. I've already heard from most of you in your testimony and I think I know where you're headed on this, but in the last panel I focused on the question of whether we face a sense of urgency here in terms of the legislation that has been proposed, both the House and the Senate legislation, to deal with increasing the borrowing authority for banks and credit unions and for the funds.

Do you all agree that we face an urgency there in the context of needing to get as much credit availability to the private sector as possible?

MR. : Yes.

MR. : Absolutely.

SEN. CRAPO: Let the record reflect that everyone did indicate that they agreed with that.

The reason I'm pushing this point is here in the Senate we are facing a battle, I will call it, over whether we should move this legislation on its own and move it quickly or whether we should add to it some other more controversial provisions, and I think you know the most controversial of those provisions that we are debating here in the Senate is what has become called the cram-down legislation for bankruptcy and which the House legislation contains.

As I indicated in my opening statement, I strongly oppose putting the cram-down legislation with this legislation, with S. 541, and I'm just interested again -- if you can, brief responses  as to whether you would support the cram-down legislation, and if not, would you agree that we should not make this issue, the issue of increasing the loan limits for the banks and the credit unions, the battleground where we fight that issue out?

Mr. Grant?

MR. GRANT: I would agree with your assessment, Senator Crapo.

There are two very important issues and you've identified them very clearly. One is a allowing the flexibility to the FDIC that the S. 541 provides in order to deal with the issue of making sure that the fund is whole.

The mortgage cram-down, as it has become called, is an entirely different issue. We remain opposed to it because it is going to limit credit, it is going to increase the cost of credit, and we believe that that's an issue that should be debated separately from the very important matters covered under S. 541.

SEN. CRAPO: Thank you.

Mr. West?

MR. WEST: As far as CUNA is represented, we'd be better off if we didn't have to include the cram-down part of this in there. There is a tremendous sense of urgency on the other side of it.

I think Mr. Grant has made some very positive comments in this area and I agree with him.

SEN. CRAPO: Thank you very much.

Mr. -- is it "Verdier"?

MR. VERDIER: Yes, Senator.

We oppose the cram-down provisions and we do share your sense of urgency on the deposit insurance provisions, all the ones I've mentioned, and so we would very much like the Senate and the entire Congress to move very quickly on the deposit insurance provisions, and as I say, we oppose the cram-down provisions for the reasons we've been discussing.

So I leave it to the senators to decide exactly how to achieve the result that we're hoping for.

SEN. CRAPO: Thank you.

Mr. Wright?

MR. WRIGHT: I'll make it unanimous. (Laughter.)

We do not support having the cram-down integrated with the things that you have before you today. We do not support cram-down and we think that it should be kept separate. Don't muddy the waters; keep it separate.

SEN. CRAPO: All right. Thank you very much.

And back to you, Mr. Verdier. You had indicated the anger that you were feeling from your members and the -- you know, I noted you mentioned the too-big-to-fail issue and then you also noted the too- small-to-save issue that seems to be bubbling up out there in the communities. You made the point that we need a more equitable distribution of the burden of the assessments and a broader assessment base.

Could you tell me, is that something that would require legislative action or could that be done administratively? Do you know?

MR. VERDIER: The FDIC for its general assessment authority does have the flexibility to broaden the assessment base except in the one instance of the systemic-risk authority. They do need some additional flexibility, as Art Murton indicated in the earlier panel. They are covering some bank holding company debt that is exempt from assessments and so that needs to be fixed; H.R. 1106 does make that change. But of course, any directive from the Congress to the FDIC in terms of using its existing authority or firming up their resolve in that regard would be most helpful.

SEN. CRAPO: Thank you very much.

And I do note, Mr. West, I agree with your comments about the marktomarket issue and we are encouraging our regulators to act with all due speed in terms of helping us put that part of the solution in place.

The last question I have -- I'm running out of time here -- but you probably all noticed that when we debated the Omnibus Appropriations Act of 2009, the big omnibus bill just recently, there was language in there that gave the Federal Trade Commission authority to expedite rulemaking over mortgage loans, and many of us were very concerned that that extended the regulatory authority of yet another agency, the FTC, into the arenas of banking and financial institutions that were federally insured unnecessarily and improperly.

We had a colloquy on the floor at the time among Senator Dodd, Senator Dorgan, Senator Inouye and myself in which we agreed that that was not intended by the language and that we would statutorily correct that as quickly as possible and explain to the FTC that they should not try to assert new jurisdictional regulatory authority over federally insured depository institutions.

The question I have to you is -- and maybe rather than having all four of you answer this, if there's one of you who would like to volunteer and jump out first, I really only have time to probably take one answer here -- but could one of you take just a moment to explain the consequences of adding yet another federal regulator into the system here?

(Laughter.) I see two hands on a tie, so we'll take Mr. Verdier --

MR. VERDIER: Thank you.

SEN. CRAPO: -- and then Mr. Grant.

MR. VERDIER: Our community bankers report that they have plenty of regulators, thank you very much.

And on a serious note, the Truth in Lending Act is very carefully enforced by the banking regulators, and the Federal Trade Commission probably has plenty to do without adding more to do on that issue.

The colloquy was excellent; we congratulate you on that. And I'm sure that the FTC has been reading that and we encourage them to maybe read it every morning. (Laughter.)

SEN. CRAPO: We'll be sure they do.

Mr. Grant?

MR. GRANT: And I can just really echo those remarks again. Thank you very much for your leadership in that, bringing together that issue.

And I can certainly say that there is more than enough regulation right now. We recently had the FDIC in our bank, and we're a very good bank, but they were still there for seven weeks in the examination process. And the concern would be, with another regulator, not only the additional regulatory burden but also the whole issue of possible confusion -- as I understand, this might also bring in the attorney generals of various states and things like that. There could be a lot of confusion in addition to the regulatory burden.

SEN. CRAPO: Well, thank you all very much.

And Mr. Chairman, I went over badly. I apologize.

SEN. JOHNSON: Senator Vitter.

SEN. DAVID VITTER (R-LA): Thank you, Mr. Chairman.

And thanks to all of the witnesses.

First, Mr. Chairman, I'd just like to publicly underscore a request I made of our committee chairman today to have a hearing as quickly as possible, hopefully next week, about the AIG bonus issue and related issues.

I think this is absolutely necessary for two reasons: first of all because of the understandable outrage Americans are expressing over this and the issue itself; secondly because the House has already passed retroactive legislation to address this. And I take a novel view that I actually think we should know the facts, what bonuses were exempted, what weren't, what the universe is, who participated in that decision, when the administration understood this, particularly before we act on legislation. So I want to re-urge that request to Chairman Dodd publicly.

I'm also preparing an amendment to that House legislation that would say we're stopping the TARP program, and administration, you can come back to us with that program or another program once you get your act together and understand how we're going to avoid these horrible problems in the future, and this is just but one example, but as of now we're stopping the TARP program.

On this issue, thank you again for your testimony. I have a big general concern that as we work to shore up the insurance fund -- and everybody agrees that we need to make sure it's sound  that we're going to be really penalizing and hurting sound, stable community banks and other banks that had absolutely nothing to do with the mess, with subprime mortgages, with exotic mortgage-backed securities or anything else. And so my big concern goes to that.

Specifically, as we all work together to shore up the fund for the insurance program  and we have no disagreement about that -- shouldn't we change how assessments are made so that it more appropriately reflects the enormous risk the bigger banks have brought to the system, which in my opinion is not adequately reflected now, in the rating of risk in terms of how that goes into FDIC insurance assessments?

I'd love anybody's opinion about that.

MR. VERDIER: Senator, I totally agree with you.

And the point we'd like to make is that there should be a broadening of the assessment base so that the banks that fund themselves with unassessed liabilities will begin to pay assessments on those and also that any bank that is affiliated with a systemic- risk institution should pay an additional systemic risk fee.

And in testimony that will come before this committee next week, we'll also talk about a possible systemic-risk fund that would be funded by those institutions so that those kinds of costs that are now being paid by the TARP program could be somewhat at least pre-funded by the systemic-risk segment of the financial services industry.

So I think there's -- it's interesting that the FDIC is the only pre-funded part of this whole effort; everything else has been funded by the taxpayers. And so I think we really need to take a close look and say, you know, who's imposing the costs and who's paying the bills?

SEN. VITTER: Right. Does anyone else have opinions about that or input? Okay.

Well, I hope we take a hard look at that because I think it's necessary. Basically, the institutions that created the problem are of course getting enormous bailout relief, and meanwhile, the smaller institutions that had nothing to do with the problem are getting an enormous bill because of the problem that the bigger institutions created. And in some cases it's threatening their profitability and their ability to continue to be out in the real world making loans, and that's just crazy.

So I think moving forward we need to look at changing the way FDIC insurance premiums are calculated because there are huge differences between a community bank, whose whole universe is deposits, and a Citigroup or other institutions which have big investment banking arms that are funded in fundamentally different ways and as a result bring enormous risk to their deposits and to all deposits that community banks don't. And so I would hope the whole committee can look at that issue.

I support Senator Crapo's proposal with others in terms of expanding lending authority. I just don't think that should be the end of the conversation.

Thank you, Mr. Chairman.

SEN. JOHNSON: I would like to thank our second panel of witnesses for taking the time to testify today on this important issue. You are excused.

And with that, this hearing is adjourned. (Sounds gavel.)

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