Beeksma, Barney R., chairman and chief executive officer of InterWest Sav- ings Bank of Oak Harbor, WA, and chairman of the U.S. League of Savings Koch, Charles John "Bud", president and chief executive officer, Charter One Financial, Inc., Cleveland, OH, on behalf of National Council of Savings McKinney, Frank E., Jr., chairman, Association of Bank Holding Companies... Rutland, George P., chairman and chief executive officer of Northeast Sav- ings, F.A., Hartford, CT; on behalf of the Financial Assistance Inequity Tomson, O. Jay, chairman, Citizens National Bank of Charles City, IA, and president, Independent Bankers Association of America...... Williams, Al, chairman, Credit Union National Association and Affiliates ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Association of Reserve City Bankers, summary statement and statement 207 Dreier, Hon. David, questions for Republican Members dated March 16, 1989 .. WITNESSES TUESDAY, MARCH 21, 1989 Brown, Mildred, president, Association of Community Organizations for Darman, Richard G., Director, Office of Management and Budget Wiskowski, Sue, chairman of the Real Estate Finance Committee, National Prepared statements Conrad, David R. Page 204 511 205 203 75 98 72 79 78 Brown, Mildred.. 570 513 Darman, Richard, tables submitted for Representative Schumer..... 629 WITNESSES WEDNESDAY, MARCH 22, 1989 Greenspan, Hon. Alan, Chairman, Federal Reserve Board. Whitley, Joe D., Acting Associate Attorney General, U.S. Department of Letter dated April 6, 1989 with response to Hon. Joseph P. Kennedy, Jr.... Response to Congressman Flake pertaining to comment on an amendment to the Administration's bill. 637 639 Response to Congressman Mfume pertaining to QTL test dated April 6, 1989 641 Response to Congresswoman Pelosi pertaining to loans to community development projects dated April 6, 1989. 643 Response to Congressman Vento pertaining to whether the Administration's proposal expands the net worth certificate program dated April 6, 1989. 644 FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT OF 1989-H.R. 1278 Thursday, March 16, 1989 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS, Washington, DC. The subcommittee met at 9:30 a.m. in room 2128 of the Rayburn House Office Building, Hon. Frank Annunzio [chairman of the subcommittee] presiding. Present: Chairman Annunzio, Representatives Hubbard, Barnard, LaFalce, Oakar, Schumer, Kaptur, Kanjorski, Gonzalez, Carper, Torres, Kleczka, Patterson, McMillen, Price, Kennedy, Fauntroy, Flake, McDermott, Hoagland, Wylie, Leach, Shumway, Dreier, Parris, Roukema, Roth, Hiler, McCandless, Saxton, Saiki, Stearns and Gillmor. Chairman ANNUNZIO. The subcommittee will come to order. This morning, this panel must finish by 10 o'clock so we can have the second panel. We have two witnesses who will be allowed 10 minutes to make their remarks. Do the very best you can, but your entire statements will be made part of the record, without objection. The entire statements are made part of the record. This morning, I am delighted to welcome the chairman of the Credit Union National Association, Mr. Al Williams, and Mr. Kenneth L. Robinson, president of the National Association of Federal Credit Unions. The subcommittee has set a tough schedule for itself. It is necessary that we have all of these witnesses so we can carry out the schedule of producing a bill on time. It is a pleasure for me, Mr. Robinson, to have you. You can proceed now in your own manner for 10 minutes. STATEMENT OF KENNETH L. ROBINSON, PRESIDENT, NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS Mr. ROBINSON Good morning, Mr. Chairman and other Members of this distinguished subcommittee. My name is Ken Robinson, president of the National Association of Federal Credit Unions, which represents the interests of credit unions that are chartered by the Federal Government. I've been in this job for the past 5 years. Prior to that time, I served 33 years in the United States Marine Corps. During those years, I had an opportunity to work with credit unions as a volun teer or as a sponsor for more than 10 years. I did serve on the board of directors of three different credit unions, one a very small one and one the largest in the world. I'd like to thank you on behalf of the Association, the credit unions that are members of the Association, and the millions of Americans who are their members, for giving us this opportunity to come this morning and make known our views on this proposal to reform the financial institutions. Credit unions, by and large, recognize the seriousness and complexity of the task which is facing this subcommittee, the Congress, the administration and the entire financial community in trying to right the difficulties that have befallen the S&Ls and some of the banks. We applaud the President and the administration for moving smartly after taking office to start work on solving the problem. We applaud the Congress for responding so smartly and getting on with working up a solution. By and large, credit unions support the bill. They support the purpose of the bill. We want to be of help and not of a hindrance. We do have a major concern, however, with title XI. That title proposes to alter the structure of the National Credit Union Share Insurance Fund, which is the foundation stone on which the confidence in our system is built. Some would characterize the proposed change as merely technical in nature, noncontroversial, and merely an accounting adjustment. That's incorrect. It's wrong. Nothing could be further from the truth. In fact, the restructuring proposed would weaken the Fund at a time we can ill-afford to be weak. Today, the Share Insurance Fund is strong and is getting stronger. And it is so because it is built on three sturdy financial legs. One of those legs is the annual premium, the 12 of 1 percent credit unions along with banks and S&Ls are required to pay. In addition, credit unions also deposit with the Share Insurance Fund 1 percent of their insured shares and they maintain their deposit at that level by augmenting the Fund each year in accordance with the amount that their shares grow. The third source of routine income for the Share Insurance Fund is the earnings off both the deposit and the equity in the Fund, which these days is running about $133 million per year. Those three measures I have described are routine measures for accommodating routine stresses, routine losses and overhead. But there is an additional provision which covers the National Credit Union Share Insurance Fund which is designed to enable us to cope with catastrophe. That provision requires that credit unions would replenish the Fund by any amount that was drawn down below 1 percent. That is to say, if the Share Insurance Fund was required to meet extraordinary losses by drawing the fund from its current 1.25 percent to under 1 percent, credit unions would be required to replenish their deposit to a 1 percent level. H.R. 1278 could cause credit unions to phase out the deposit by writing it down over 8 years and reverting the NCUSIF to a premium only fund, which is exactly the situation that prevailed prior to 1985, when the Fund was recapitalized. The Fund as currently structured, meets the requirements to keep it growing each year. Credit unions would be the requirement to replenish the Fund in the event a catastrophe required a writedown on the deposit. Secretary Brady, who testified before this subcommittee at an earlier time, suggested that credit unions were writing down their 1 percent deposit over 8 years, and would not be required to pay a premium during that period. The net result of that proposal is there would be no in-flow to the Fund other than income on the funds it now has in hand until 1999. That is to say, there would be no 12 of 1 percent premium paid and there would be no augmentation of the Fund each year to match growth. So, in essence, what the Fund has today is what it would have until the beginning of the next century. If Mr. Brady's interpretation should not prevail, the credit unions would be required to make a deposit of 12 of 1 percent while they were, in fact, writing down the 1 percent. Then, in essence, they would be writing off 12.5 basis points for their deposit and another 8.3 basis points for their premium, which would mean that credit unions would be paying almost 21 basis points, which is more than the banks would be paying. And the credit union fund is not short, and it's not weak. NCUSIF earned $43 million after expenses in 1988, whereas Chairman Seidman of the FDIC reported just the other day that their fund was down $4.7 billion this year. So we have the anomaly of the credit unions, whose fund is strong, paying more than those whose fund is weak. From 1970-1983, the Share Insurance Fund was a premium only fund. The system worked OK except during periods of growth. The Fund did not grow at the same rate that the exposure group-that is, NCUSIF's funds did not grow as quickly as the shares that they were designed to insure. So, in 1982, when the NCUSIF did suffer its most severe loss to date, about $77 million, it became obvious to NCUA and to the credit unions that some better way had to be found. So, working with the Treasury, with the administration, with the Congress, the entire credit union community came up with a program that would add a deposit to the regular premium. In January 1985, the credit unions did in fact implement that by sending $800 million to the Share Insurance Fund in Washington. They did this willingly. They did it knowing that if the funds were required to use those dollars to accommodate losses, that they would be used for that purpose. Since shares covered by the Insurance Fund have nearly doubled since 1985, the dollars in the Fund have also doubled and the deposit now stands at $1.6 billion. Also, the retained earnings on the equity of the Fund have also grown. They were just slightly over $200 million in 1985. They are now approximately $400 million. Just for perspective, I would point out that the average losses for the credit union community over the last 10 years have been about $40 million. |