September 29, 2009
Comptroller Dugan Comments on Prepaid FDIC Assessment
WASHINGTON — Comptroller of the Currency John C. Dugan made the following statement at today's meeting of the Federal Deposit Insurance Corporation on a set of proposals that would raise funds for liquidity needs through a prepaid assessment:
I think this is a very thoughtful set of proposals and I support them, subject to receiving comment. I also support the thoughtful comments of my colleagues.
The actions we are taking today represent a balanced approach to raising needed money for the deposit insurance fund without impairing the ability of our banks and thrifts to support economic recovery.
Earlier this year, I said I was very concerned about the pro-cyclical effects of imposing one or more special assessments on the industry in the middle of a recession, when so many banks were struggling. For banks that were already feeling the effects of a weak economy, special assessments could only make them weaker and less able to provide the credit that businesses and families need.
So, I am very pleased that we are proposing not to impose another special assessment in 2009 or 2010. The fact is, given the projected losses facing the fund, the FDIC can not meet its needs on a "pay-as-you-go" basis with special assessments. We have to borrow, and therefore spread out the assessment costs to repay the amounts we borrowed. Given that stubborn fact, it makes good sense not to increase assessments now, at the worst possible time.
Having said that, I think it's important for everyone to recognize that all of the borrowing options we have before us will be paid for by the industry, as is appropriate. If we had gone the route of proposing borrowing from Treasury, that loan would ultimately be repaid by the industry, and the industry would not be in the position of financing the liquidity needs of the insurance fund all at once and upfront. But that option does create more of a perception that the fund is somehow paid for by the taxpayer, even though that is not an appropriate perception.
On the other hand, our proposed prepaid assessment option addresses that issue squarely by ensuring that the industry both provides the up-front resources for liquidity and pays for it over time through additional assessments.
The only potential downside of this, it seems to me, is that the cash provided to the FDIC will not be available to make loans. Given the size of the amount we are seeking — $45 billion spread out over the multi-trillion banking industry, which has over $13 trillion in assets — this may not be likely to have a material effect on credit availability. Indeed, a number of banks argue that liquidity is plentiful and is not a lending constraint. I think those are all fair points, but I think this is an important question and hope we get comment on it, which I will review very carefully before making a final decision.
In short, I think this is a very positive proposal. The staff did an excellent job, and I support the way you handled it.