Washington, DC- The U.S. House of Representatives overwhelmingly passed H.R. 1185, the Bachus-Hooley Federal Deposit Insurance Reform Act of 2005 today. 

“This legislation will give Americans an even more stable and secure insurance system for deposits in their banks, thrifts and credit unions.  These needed reforms will bring the deposit insurance system into the 21st century by enhancing the value of our insured deposits, improving retirement security for all Americans, and ensuring that the value, cost, and benefit of deposit insurance is shared equally,” said Rep Hooley.

This legislation will bring the deposit insurance system into the 21st century by enhancing the value of insured deposits, improving retirement security for all Americans, and ensuring that the value, cost, and benefit of deposit insurance is shared equally.  The bill now proceeds to the Senate for action. 

H.R. 1185 updates deposit insurance coverage levels for the first time in 25 years.

·        Increasing the maximum coverage per account to $130,000;

·        Doubling that amount of coverage for retirement accounts, to enhance the retirement security of senior citizens and those planning for retirement; and

·        Indexing for inflation every five years, as a way of preserving the value of the deposit insurance safety net;

·        Increases coverage limits for in-state municipal deposits, to $2 million or 80 percent of any deposits over $130,000, whichever is less. 

By extending municipal deposit coverage this bill not only protects taxpayers from the potential consequences of the failure of a local financial institution, but promotes community development by encouraging local government agencies to keep their funds on deposit with local financial institutions, thereby making the funds available for lending back in to the community.

H.R. 1185 also enhances the flexibility of the FDIC to manage the deposit insurance system according to risk and economic conditions.  The current system has a “pro-cyclical” bias, potentially resulting in sharply higher premiums being assessed against depository institutions at “down” points in the business cycle, when banks can least afford to pay them and when funds are most needed for lending to jump-start economic growth.

H.R. 1185 addresses these structural flaws in the current system by removing the restrictions on the FDIC’s authority to charge premiums at all points in the business cycle, and by giving the agency greater discretion to identify the relative risks all institutions present to the deposit insurance fund.

Finally, H.R. 1185 merges the FDIC’s Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF), thereby eliminating potential disparities in the premiums paid by banks and thrifts, and reducing the administrative burden of operating two separate insurance funds.

“Like other government programs that form part of the economic safety net for America’s families, deposit insurance should be periodically adjusted for inflation to ensure that its value does not erode over time,” Financial Institutuions Subcommitte Chairman Spencer Bachus (R-AL) said.  “The system has gone 25 years without such an adjustment - the longest period in its history - and the modest increases provided for in our bill are critical if deposit insurance is to maintain its relevance.  The alternative is to simply let deposit insurance wither on the vine, which is an unacceptable outcome for the millions of Americans who depend upon it to protect their savings,” said Rep. Bachus. 

Financial Services Committee Chairman Michael Oxley (R-OH) said, “This legislation will provide greater protection for consumers and the economy.  It recognizes that depositors, savers and investors have integrated financial needs, and that the deposit insurance system must be stronger, more flexible, and adaptable to changing depositor behaviors in real time.”

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