Magazine article American Banker

Shadow Group to Clinton: Hurry; Prompt Funding Urged for Deposit-Insurance Shortfalls

Magazine article American Banker

Shadow Group to Clinton: Hurry; Prompt Funding Urged for Deposit-Insurance Shortfalls

Article excerpt

Prompt Funding Urged for Deposit-Insurance Shortfalls

The Shadow Financial Regulatory Committee, a group of banking experts cochaired by Lawrence Connell, CEO of Society for Savings Bancorp, and George Kaufman, a Loyola University professor, sent an open letter to President-elect Clinton last month urging early action on some key issues. Here are edited excerpts.

The Clinton administration will inherit a legacy of deposit-insurance losses that are not yet fully recognized or adequately funded. Several actions should be taken to resolve these losses promptly and to prevent them from hindering future budget initiatives.

* Sufficient funds must be appropriated and used to clean up book-insolvent S&Ls already under the control of the Resolution Trust Corp. The longer these insolvencies remain unresolved, the greater the probable cost to taxpayers and the higher the odds that taxpayers will hold the new administration responsible for that cost.

* The Clinton administration should promptly reserve for the threat of deposit insurance losses posed by weak banks and thrifts.

* It would be a mistake to attempt to fund these inherited losses solely from future deposit-insurance premium income.

The administration should put the deposit insurance system on a sound long-term footing. The FDIC Improvement Act of 1991 has made real contributions to correcting critical defects in the insurance system. Despite this fine beginning, more remains to be done. …

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