Panel I 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: 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 increasingly important that we have a strong and stable deposit insurance 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'm pleased to hold this hearing today to take a closer look at the present 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 the time and for their thoughtful testimony.
We're 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 4:00, 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.
Welcome.
Our second witness is Mr. David Marquis. Mr. Marquis is the director of the National Credit Union Administration and the former head of NCUA's Examination and Insurance Division.
Welcome.
I will ask that the witnesses please limit their testimony to as close to five minutes as possible. Your full statement any additional materials you may have will be entered into the record.
Mr. Crapo, do you have some comments?
SEN. MIKE CRAPO (R-ID): Thank you very much, Mr. Chairman. Sorry for being late. I'm out of breath from running to get here.
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 acknowledgement that it will happen, but it's an acknowledgement that there is a threat or a risk present.
The FDIC and the NCUA protect against the loss of insured deposits if a federal insured bank, savings association, or a credit union fails. It's important to note that the depositors who have accounts at failed banks or credit unions are made whole by the insurance fund at either FDIC or NCUA that banks and credit unions pay into. It's essential that this remains the case, and I'm going to oppose any efforts to change that.
In order to make sure that the FDIC and the NCUA can immediately access the necessary resources to resolve failing banks and credit unions and provide timely protection to insured depositors, I support increasing the borrowing authority of both the FDIC and the NCUA. I'm a co-sponsor of S. 541 with Senator Dodd and others that would permanently increase the FDIC authority to borrow from the Treasury and increase that authority from $30 billion to $100 billion. I note that it's been a long time since that borrowing level has been increased.
In addition, the bill would temporarily authorize an increase in borrowing authority of about ($)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 Department 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's 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 necessary resources to address future contingencies.
And again, Mr. Chairman, I appreciate your holding this hearing. I look forward to working with you and hearing from our witnesses.
REP. JOHNSON: Mr. Murton, please begin.
MR. MURTON: Thank you, Chairman Johnson and Ranking Member 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 economy. While many sources of bank funding have pulled back during this last six months, deposits have not. They remain a stable source of funding because depositors know that insured deposits are absolutely safe.
My testimony will discuss the condition of the deposit insurance fund and the need for an increase in the FDIC's borrowing authority. I will also comment on other current and potential changes to the deposit insurance system.
At the beginning of 2008 the deposit insurance fund had a balance of $52 billion. By the end of the year the balance had declined to $19 billion. The decline was caused by the cost of protecting depositors in banks that failed last year and by the reserves that we set aside to cover the expected cost of bank failures this year.
Last October the FDIC board, as required by law, put in place a plan to restore the insurance fund to a target range within five years. Based on projections at that time, the restoration plan called for banks to pay higher premiums. Recently the FDIC updated those projections and because of the continued deterioration in the financial system, our estimated losses are significantly higher. As a result, the FDIC's board of directors made a series of difficult decisions to ensure that our deposit insurance system remains sound.
Most importantly, the board adopted an interim rule setting a special assessment of 20 basis points. These increases in assessments are necessary to ensure the adequacy of the FDIC's industry-funded resources.
The FDIC's guarantee for 75 years has always been funded by the industry. Deposit insurance has been an important source of stability during our current financial crisis and it has not relied on taxpayer funding.
The FDIC realizes that these assessments are a significant expense, particularly during a financial crisis and recession when bank earnings are under pressure, and we recognize that banks face tremendous challenges right now even without having to pay higher assessments, so let me turn now to our borrowing authority.
While the FDIC is an industry-funded program, the FDIC guarantee is backed by the full faith and credit of the U.S. government. In light of this, Congress has always provided the FDIC with a line of credit to the U.S. Treasury. The FDIC's borrowing authority was last raised by Congress in 1991 to $30 billion and it's not been raised since then. Assets, meanwhile, in the banking industry, assets have grown. They've tripled from $4.5 trillion to close to $14 trillion, and the FDIC believes it is necessary to adjust the line of credit to reflect that growth.
The Depositor Protection Act of 2009 -- S. 541 -- would increase the FDIC's authority to borrow from Treasury from $30 billion to $100 billion. And as Senator Crapo mentioned, it would also allow a temporary increase above $100 billion but not to exceed $500 billion based on a process that requires the FDIC board, the Federal Reserve board and the secretary of Treasury in consultation with the president to make a finding that that's necessary.
And it's important to note that any use of that borrowing authority is required by statute to be repaid by the industry.
The recent decision to impose a special assessment reflected the FDIC's responsibility to maintain resources sufficient to cover unforeseen losses, and the size of the borrowing limit is critical to this decision.
Chairman Bair has stated that an increase in our borrowing authority would give the FDIC the flexibility to reduce the size of the special assessment. The events of the past year have demonstrated the importance of contingency planning to make sure the FDIC can seamlessly fulfill its commitment to protect insured depositors.
The Depositor Protection Act would ensure that the FDIC will continue to have the resources necessary to address future contingencies. The FDIC strongly supports this legislation and looks forward to working with the sponsors into law.
Now let me just turn briefly to the FDIC systemic-risk exception and how the costs of it are paid.
As you know, the current law authorizes the FDIC to take extraordinary actions in certain circumstances to protect the financial system and the economy from systemic risk and to recover the costs of that action through a systemic risk assessment on banks.
The FDIC's recent experience suggests that we don not have sufficient flexibility to allocate any such assessment fairly among the parties who benefit. For example, recent actions taken under the systemic risk authority have benefited parties who are not subject to any assessment by the FDIC.
The statutory language in H.R. 1106 would address this by allowing the FDIC to impose systemic risk assessments on parties that benefit from the special systemic-risk exception, including bank holding companies.
The last area that I will comment on is the level of deposit insurance coverage.
With regard to proposals to make permanent the current temporary increase in deposit insurance coverage to ($)250,000, the FDIC believes that the level of deposit insurance coverage is a policy determination that appropriately should be made by Congress.
However, because any increase in the level of deposit insurance coverage increases exposure of the fund, such a change must also permit the FDIC to account for the newly insured deposits when setting premiums necessary to maintain the fund.
So in conclusion, the events of recent months have clearly demonstrated the benefits of deposit insurance. Assured by this guarantee, consumers have continued to maintain deposits in insured financial institutions and have provided vital credit for communities across the country.
With additional modifications to the deposit insurance system, such as the increase in the FDIC's borrowing authority, we can maintain a system that continues the FDIC's mission of providing stability to the financial system.
Thank you, and I look forward to your questions.
SEN. JOHNSON: Mr. Marquis.
MR. MARQUIS: Thank you, Chairman Johnson, Ranking Member Crapo. Good afternoon. The National Credit Union Administration appreciates this opportunity to provide the agency's position on current issues in deposit insurance.
Federally insured credit unions comprise a small but important part of the financial institution community, and hopefully the NCUA's perspective will add to the understanding of issues relating to federal insurance at this critical juncture.
Recent events underscore how important federal insurance is to consumers, and the National Credit Union Share Insurance Fund has played a valuable role in reassuring credit union members that their federally insured funds are safe to ($)250,000.
I would like to confine my oral statement to a few key points.
First, NCUA supports the permanent increase in federal deposit insurance to ($)250,000. Reverting to the pre-2008 level of ($)100,000 would likely have a negative effect on consumer confidence at this time when federally insured depositories such as credit unions are appropriately seen as a port in a storm.
Second, NCUA supports the extension of the period of time the agency has to assess a premium to restore the NCUSIF to its statutory minimum. Currently the Federal Credit Union Act requires credit unions to pay a premium in the event the NCUSIF equity ratio falls below the 1.2 percent. That premium to restore the level must be collected in the same year as the decline.
NCUA believes that extending the time the agency has to restore the equity level from one year to five years would provide important flexibility for credit unions. A premium assessment would occur during a period of economic difficulty when credit unions could least afford it.
This, in turn, reduces the amount of dollars credit unions can lend to their members, which stimulates and supports the economy in a very direct way. A five-year period is a sensible way to address this strain on credit unions without sacrificing the financial soundness of the insurance fund.
Third, the authority of NCUSIF to borrow from the Treasury has remained at $100 million since the inception in 1970, this despite significant growth in industry assets and insured funds. Borrowing authority is vital because the insurance fund's cash needs would far exceed expected losses during difficult periods. In the event of a failure of a large institution, NCUA might need to properly pay out all the insured shares which would exceed available liquidity resources.
The maintenance of public confidence in this kind of extraordinary event strongly suggests that Congress update the NCUSIF figure to a more realistic and useful number given the size of the industry today versus what it was in 1970.
A recently passed House bill has a provision that we increase the NCUSIF borrowing authority to $6 billion. This figure is appropriate reflection of the growth in the industry today. Furthermore, emergency borrowing authorities such as the one that Chairman (sic) Crapo recently put into legislation for the FDIC in a multiple of five times ordinary borrowing authority would be an important contingency tool in the event of further dislocations in the market. NCUA views these increases as a vital step in our effort to maintain a stable insurance fund for credit union members.
Finally, Congress should consider providing NCUA with systemic- risk authority similar to the FDIC. This enables the FDIC to provide assistance to banks in emergency situations subject to concurrence by the Treasury and the Fed.
NCUA has certain tools available to it, but these tools are very limited by statute and too narrow in focus in the event of a broad, large-scale financial dislocation like the one we are now experiencing. NCUA does not sufficient ability to respond when certain extraordinary circumstances threaten to undermine confidence in the credit union system as a whole.
During some of the recent disruptions in the corporate credit union system, for example, NCUA was forced to resort to makeshift burdensome share guarantee programs that, while workable, required a complicated execution of agreements between the NCUA board and the corporate credit unions.
Given the size and complexity of the adverse events that can occur, broader, more direct remedies available through systemic-risk authority are needed. The problem facing our financial markets and the institutions that serve them are real, but so is the safety and stability provided by a sound and well-functioning deposit insurance fund.
NCUA is working to give consumers a significant measure of reassurance during these troubled times. NCUA's hearing and legislative process before you represent an appropriate opportunity for Congress to identify and act on important improvements that will make a good system even better for the nation's consumers.
Thank you and I'll be glad to answer any questions.
SEN. JOHNSON: Thank you, Mr. Marquis.
Mr. Murton, in addition to the potential increase in costs because of increased coverage, the FDIC has increased premiums to restore the DIF as part of the restoration plan and announced a special assessment. How does the FDIC intend to address the concern that the special assessment and other costs will unfairly affect small banks, particularly those that played by the rules and did not contribute to our current economic crisis?
MR. MURTON: Yes, thank you. The FDIC has proposed higher premiums. As you know and as I said in my statement, the insurance fund that we administer has been declining over the last year or so and falling well below the target range.
We have always been an industry-funded deposit insurance system and we think it's important to maintain that status, and the banks that we talk to agree with that. We feel that it's important now to maintain a cushion for any contingencies and that's why we're asking for increased borrowing authority.
We recognize that the higher premiums that we're being -- asking banks to pay come at a difficult time and the FDIC board has always struggled at times like this with the trade-off between maintaining a sound deposit insurance fund on the one hand and allowing banks to have the funds necessary to meet the credit needs of their community.
So in order to strike that balance, we feel what the board has proposed has tried to strike that balance, but we've also indicated that if our special borrowing authority were increased, we think we would have enough of a cushion so that we could lower the special assessment. So that's one thing that we're trying to do.
We've also recently, as part of our guarantee -- our temporary guarantee program, we recently changed the fee structure of that so we're shifting more of the fees towards the larger users of this guarantee program, and those additional funds will be placed in the DIF and that will be able to allow us to offset some of the special assessment.
In terms of the community banks that have played by the rules, we've made some changes to our risk-based premium system which was part of the legislation in 2006 so that we've asked, as part of our risk-based pricing system, for the banks that are taking on more risk to pay more of the burden and for those traditional banks that have basically stuck to their knitting to pay less of the burden.
So we're trying to address those very legitimate concerns.
SEN. JOHNSON: Mr. Marquis, does the NCUA have a concern about the equity levels in credit unions that they need emergency borrowing authority and does the -- the Treasury Department has said that it supports an increase in the FDIC's emergency borrowing authority; does the Treasury feel the same way about increasing NCUA's emergency borrowing authority?
MR. MARQUIS: Our borrowing authority right now is limited to $100 million, and at the time when that was enacted in 1970, the credit union industry had total deposits of $13 billion. Today the credit union industry has assets of a little bit greater than $800 billion, so that's 62 times the asset size. In order to get the equivalent ability of NCUA and the insurance fund to act on issues of need in terms of payouts, we would have to go to $6 billion in order to equal that equivalent.
I don't know if the Treasury supports that. To my knowledge we're not sure -- I'm not sure that's the case. But as we wrote this for this hearing, we did talk to some of the members, at least a pack of folks did on the -- members of the committee and on the House side -- and tried to come up with a reasonable number that kind of mimicked or matched what the FDIC was and kind of where we were in relationship to what the size of the industry was back in the 1970s.
SEN. JOHNSON: Do you both agree that the temporary increase in deposit insurance to $250,000 should be extended beyond 2009? Should the increase be made permanent?
MR. MARQUIS: Yes. We believe it should be made permanent. Again, the last time this issue was looked at was in 1980 when the $100,000 was established. Looking on an inflation-adjusted basis that would bring us to about 243(,000 dollars). Prior to that in the 1970s the insurance fund was -- insurance limit was $40,000.
We think this would allow some of the small credit union, medium- size community credit unions to be able to generate more deposits in the smaller institutions and the hometowns and hopefully keep the money or credit available in those locations as opposed to spreading it out into the branches and real large institutions.
We think this is helpful to the -- especially the community credit unions and smaller credit unions and helping them to -- basically it would help us from the insurance fund spread out the systemic risk in that it would more -- it would have the opportunity to let folks that start out in credit unions in their 20s and then by the time they get into their 70s, they don't want to keep ($)100,000 so they tend in their hometown, have to go put it somewhere else and this would allow them to stay with their institution and keep a little more money there.
SEN. JOHNSON: Mr. Murton?
MR. MURTON: Yes, the FDIC has always taken the position that the level of deposit insurance coverage is an important policy call for Congress to make and the FDIC understands that there are trade-offs on both sides of that issue. If the guarantee is made permanent, the increase in the guarantee is made permanent to 250,000, we would ask that we be able to take that into account in setting our reserves or our premiums in order to maintain the fund.
SEN. JOHNSON: Mr. Crapo?
SEN. CRAPO: Thank you very much, Mr. Chairman.
For both of you, right now both the banks and the credit unions are facing the impact of special assessments as a result of FDIC and NCUA's efforts to maintain adequate resources. And as we are all painfully aware, these special assessments are creating a concern about the financial impact on our financial institutions at a time when they really need to have as much bang for the buck, in terms of providing credit, as possible.
The question I have is -- well, and further in that context, it's my understanding that the increased borrowing authority that both of you are talking about would be able to provide both the FDIC and the NCUA some pathways to relieving that pressure. And the question I have is, first, how does the increased borrowing authority really help you relieve that pressure on the assessments? And secondly, what would be some of the unintended consequences if Congress delays action on this borrowing authority issue?
Mr. Murton or Mr. Marquis, whoever wants to go first.
MR. MURTON: Yes, I'll take it.
We are asking for the increased borrowing authority and we do think that that will help to allow us to set a lower special assessment. Basically we -- our insurance fund has been declining, and as a result, the cushion that we have for contingencies, for unforeseen circumstances, has been getting smaller and the borrowing authority is part of that cushion for the contingency.
So if Congress sees fit to increase our borrowing authority to keep pace with the growth in the industry over the last 25 years, then the board can take more comfort in allowing the lower special assessment and allowing the fund to go somewhat lower.
If we don't -- if Congress doesn't act quickly, the board does have to make a decision soon on this special assessment. We are planning to go to the board in late May -- mid to late May and the board will have to decide whether to keep the 20-basis-point special assessment in place.
And so action soon enough to allow that decision to be effective would be welcome. And then, as I say, the 30 billion -- or the line of credit is for contingencies, and given the circumstances that we're facing, there are a number of contingencies that we may face.
SEN. CRAPO: Thank you.
Mr. Marquis?
MR. MARQUIS: Thank you. As you know, the insurance fund for NCUSIF is structured in a way where the first 1 percent that credit unions are required to deposit is an asset on their balance sheet and it's not a premium. The other part of the share insurance fund is equity that we build up over time and allowed us to go to 1.3 over time over the -- past several years. The borrowing authority gives us the ability to have cash needs for payout priorities or payout issues should those issues arise, which we're not anticipating at this point.
But the 1 percent, if we haven't an issue that causes us to reserve or to fund for anticipated losses still does impact the share insurance fund 1 percent because it's an impaired asset because it was never collected as a premium. So accounting-wise, that does cause an impairment and currently at our January 28th meeting we did have to reserve for a significant amount of money for some issues and that caused our share insurance fund to go down to about .1 -- (.51 ?) -- and that is going to trigger a premium late on in this year.
SEN. CRAPO: So if I understand both of you correctly, decisions have to be made relatively soon with regard to the special assessments, and the failure to be able to rely on the increased borrowing authority could cause higher assessments, and that, in turn, would reduce our ability to get more cash into credit markets than into these types of assessment funds. Correct?
MR. MURTON: That's correct.
SEN. CRAPO: So the longer -- the point I'm trying to get at here is the longer Congress takes to act, the greater the threat to our system or, maybe put it a different way, the less likelihood we will -- or the less opportunity we will have to be able to free up more credit in the banks and credit unions for the public sector -- the private sector.
MR. : (Off mike.)
SEN. CRAPO: All right. Could you each just quickly go through with me the process that would be followed if there were a failure of a credit union or a failure of a bank? And what I'm getting at is this: I think it's very important for the public to understand that this is -- these dollars are -- even if the loans have to be accessed, ultimately the funds that would be used for the insurance protection here are going to come from the industry itself, and that's the point that I wanted to get at from both of you.
MR. MARQUIS: Yes, the process of putting a credit union into receivership and liquidation is one that we take over the institution and pay it out, all the share deposits, within a couple days in order to maintain confidence in the system. That's a cash drain, of course, on the share insurance fund.
Then a process takes place in terms of recovery of assets on the other side of the balance sheet, which is a long, drawn-out process at times as you try to liquidate the assets or sell them or merge them or what have you. So that does take -- and the loss ultimately takes capital out of the system, which reduces the risk premium charge, which reduces the ability of a credit union to extend more credit in the market because they have to contract their balance sheets in order to meet their capital requirements.
SEN. CRAPO: Thank you.
MR. MURTON: Yes, when an FIDC-insured bank fails we are able to resolve it quickly without interruption to the funds for depositors.
SEN. CRAPO: So the depositors in both cases get their funds protected within days.
MR. MURTON: Absolutely, usually the next business day. In virtually all cases there's no interruption to their funds.
SEN. CRAPO: All right, continue.
MR. MURTON: And so in order to be able to do that we need cash -- we need to have the cash available to do that. And this borrowing authority helps us to make sure that we have the cash for whatever contingencies. To pay back that borrowing, we pay it back through the collection from the assets that we get from the field bank but also through the premiums that we assess on the banks.
And we have always been able to pay -- we've only borrowed from the Treasury once and that was for short-term liquidity needs and we paid that back within two years. But any resources that we use and any losses that we incur as a result of a bank failure are paid for through assessments on the banking industry.
SEN. CRAPO: So the bottom line is in both cases the depositors are protected immediately, the taxpayers ultimately do not end up holding the bill for the protection that is provided.
MR. MURTON: That's right.
SEN. CRAPO: Thank you.
SEN. JOHNSON: Chairman Dodd?
SEN. CHRISTOPHER J. DODD (D-CT): Well, first of all, Senator Johnson, let me thank you and Senator Crapo for doing this. I appreciate it very much. We almost ran into each other; the hearing this morning went a little long because of votes and I thought we'd be done much earlier. So we were leaving the room as you were coming in the room, so I want to thank you very much for holding -- this is a very important hearing because we've got to in the coming days here now -- we're trying to resolve some matters of a type -- whether we resolve it we want the other one to move forward.
But Senator Johnson, Senator Crapo have been tremendously supportive of the idea of a need for doing what we need to be doing, and I guess it goes back some time. Actually we've been living with a $30 billion ceiling since 1991, so for the last almost number of years here, 20 years, we've had people talking about the need to move up, and obviously the situation we're in I think makes that point very loudly to us.
And dealing obviously with raising statutorily to the 250(,000 dollars) also makes a great deal of sense as well. And then the issues related with that I think are important.
I just have a couple of quick ones for you. There have some concerns raised about our current system of collecting premiums for deposit insurance in that -- that is it's pro-cyclical; that is, banks are charged more for deposit insurance during economic downturns, which is exactly when they can least afford to pay them.
And so I wonder what we can do to minimize this pro-cyclical impact of deposit insurance assessments, because obviously we heard it again today; Senator Bunning was talking about assessments in his state -- I don't know if you heard his comments, but talked about a 1,000 percent increase in premium costs.
Sheila Bair was willing to sit down and talk about that particular case, but nonetheless, that assessment, according to Senator Bunning, would make it impossible for that lending institution in his home state of Kentucky to make a profit based on that cost. So I wonder if you might respond to this issue of how we can maybe think of a more creative way.
Mr. Murton, we'll start with you.
MR. MURTON: (Off mike.)
SEN. DODD: Is that microphone on?
MR. MURTON: Sorry, yes. Yes, sorry. The issue of pro- cyclicality has been one that the FDIC has dealt with for a number of years, and in fact, for a number of years we had a system that was more pro-cyclical. It required us to charge whatever it took to get the fund back up to a target of 1.25 within a year.
The legislation that passed in 2006, which Senator Johnson was a strong advocate for, helped with that situation. And because that law was passed, we have not had to charge the high premiums for the last two years. We've been able to allow premiums to be lower than they otherwise would.
But we're at a time where the fund has declined and it's declined so that the cushion that we have is getting uncomfortably small and that's why the borrowing authority, the increase in the borrowing authority, will help to alleviate some of that pressure and allow the board to lower the special assessment.
We are looking at other ways to try to address the special assessment. We have, as I indicated, changed the fee structure for the guarantee program that we've put in place, and we've raised some of the fees for that and we're going to put them in the deposit insurance fund, so that will help lower the special assessment. And we've also put in place a risk-based pricing system where riskier banks are asked to pay more than the safer banks.
So we are trying to take steps to lower the impact on the industry at what is probably one of the worst times for them to be facing. Having said that, it is important to maintain an industry- funded program. We feel it's very important and the banks that we talked to feel that's an important feature of it.
SEN. DODD: Well, I appreciate that.
One more question; I'll ask you, Mr. Marquis, for the answer. On the second panel, Mr. Wright, who is from the National Association of Credit Union Unions, and Mr. West, from the Credit Union National Association expressed concerns over the increased assessments resulting from the National Credit Union Association's corporate stabilization plan announced earlier this year.
To mitigate the cost to credit unions, both witnesses proposed allowing corporate credit unions to access the central lending facility and making the central lending facility available for capital as well as liquidity. I wonder if you could share with -- what your organization's position is on this proposal, and if you're not for it, why and what alternatives would you suggest?
MR. MARQUIS: NCUA supports the concept of trying to find a way for the credit unions to mitigate the cost of having to recapitalize the 1 percent deposit all at one time. However, we also are mindful that we want a program that's not going to create further problems. The credit unions built their insurance fund, or built their portfolios up of capital from 1992, the last time we charged a premium, from about 6.4 percent to 11.5 percent, so their balance sheets are very healthy during the good times.
Share insurance fund at that time was maintaining at a rate of about 1.3 (percent), and it cannot charge a premium beyond that point, and we have to give it back once it goes -- we don't have to give it back but we can't charge a premium.
On the CLF issue, the CLF is established for liquidity purpose and it's funded through -- its borrowing authority is set out in a multiple of its capital. It can borrow 12 times its subscribed and paid in capital. So today that's $41 billion.
If we were allowed to put it in capital instead of liquidity into an institution that would be at risk or the capital would be subject to covering an insolvent institution, that capital would be impaired and impaired on the CLF books as well on its capital. That in turn would reduce the borrowing authority from the CLF, and if you had an insolvency or a capital position that got impaired to the tune of about ($)3.4 billion, it would wipe out the borrowing authority altogether.
On the other hand, the additional issue would be is the capital for the most part is subscribed for credit unions on behalf of them through our largest corporate, U.S. Central, and if that issue or if that capital was impaired it would further impair the capital of that institution and further put that institution in harm's way.
So those issues make it somewhat problematic, at least the way the structure of the CLF is currently written, not that that could not be adjusted, but you have to make some significant changes on how the CLF authority is established in terms of how its borrowing authority is set out.
I know our chairman is working with staff and we're due to give him something and present to our board on Tuesday as a possible way that this could be done to mitigate that issue and a proposal that might work through a stabilization fund on top of the share insurance fund. But he has to vet that with his other board members before he's ready to present it to Congress.
SEN. DODD: Thank you very much.
Thank you, Mr. Chairman.
SEN. JOHNSON: I would like to thank our first panel of witnesses for taking the time to testify today on this important issue. You may be excused for the second panel.
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