July 23, 2008

WASHINGTON, DC - Congressman David Dreier (R-San Dimas, CA), Rules Committee Ranking Republican, has introduced legislation today aimed at giving the FDIC more flexibility in its ability to help protect the deposits of banks facing financial crisis.  Dreier introduced the FDIC Flexibility Act of 2008, H.R. 6565, earlier this week.

“While steps have been taken over the past several years to ensure that the deposit insurance system is strong - and it is  - the IndyMac situation demonstrates that every bank failure is different. Their situation makes clear that regulators need as much flexibility as possible to ensure that they can respond to whatever the market throws at them.  That is why I am introducing the ‘FDIC Flexibility Act of 2008.’  After talking with the widely respected Bill Seidman, the Chairman of the FDIC during much of the response to the savings and loan crisis, I believe that some well-intentioned provisions of the law may actually make the FDIC’s job harder, not easier.  Hopefully this legislation will help change that.”

The FDIC Flexibility Act of 2008 specifically repeals the “low cost solution” provisions which require the FDIC to always choose the solution with the lowest cost to the banking fund when resolving an institution.  The problem is that what might be a low cost solution for a particular institution might not always be the best or fastest way to ensure that depositors have access to their funds.  In some cases, the best way to resolve an institution may not be the absolute cheapest - such as selling the failed institution to a stronger bank at a discount - but it will increase confidence and stability in the banking system as a whole, and reduce exposure over the long-term.

Dreier said he didn’t believe this legislation was a silver bullet to resolve the crisis facing the financial markets, but it could be a part of a larger discussion on how to confront these challenges.  “We need to have the discussion about what kinds of tools our regulators need, and with an advocate as widely respected as Chairman Seidman, this is a good place to start.”