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Public Statements

Impact of Insured Depository Institution Failures

Floor Speech

By:
Date:
Location: Washington, DC

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Mr. DAVID SCOTT of Georgia. Mr. Speaker, I yield myself such time as I may consume.

As my distinguished colleague from Georgia, Congressman Westmoreland, pointed out, whom I am very pleased to serve as a cosponsor with on this bill, he very aptly described the very dire situation facing our State of Georgia.

Mr. Speaker, as I stand here, Georgia, since the 2008 financial difficulties started in this country, 67 banks have failed, which makes us the leader in the Nation in this area in our State. We have some very capable business people in Georgia and in Atlanta, very sterling leaders of the financial services industry worldwide based out of Atlanta. We're grappling with the recovery.

But there is no more important sector of our economy than our banking system. It is, indeed, the heart of our economic system. It pumps out the credit. It pumps out the capital that makes our economy go around. So it is very important that we really deal with an area and with information and with an effective study so that we can grasp the full meaning of what caused this to happen, what were the characteristics in Atlanta or in Georgia that caused this disproportionate number of bank failures. And, indeed, we could learn so much so that we can prevent this type of a collapse in our bank financial system from happening again and make a very valuable contribution.

So with that, Mr. Speaker, I want to take just a moment to explain what we are doing with this important bill, H.R. 2056, that we feel will make a very valuable contribution to preventing these kinds of collapses from happening again to the detriment of our economic system.

The purpose of this bill is, one, to determine the extent to which certain FDIC practices precipitated the bank failures. We need to find out if there's something that the FDIC was doing, that regulators were doing that we need to improve upon.

Two, we need to determine whether various FDIC policies and practices for resolving failed banks are appropriate. That's very important to know. If what we're doing is not appropriate, we can fix that.

And, three, we need to determine the extent to which the FDIC employees, themselves, in the field, the investigators, the bank examiners take actions that were consistent with FDIC policies and procedures that we developed here in Washington. In other words, Mr. Speaker, we need to take the time to look at this

peculiar situation of this rash of bank failures in one basic geographic area of this country to see what really went wrong and if there were some things that we were doing here in Washington that we need to correct.

And, finally, we need to determine the extent to which the FDIC policies and procedures are applied consistently across all banks. This information will be very important.

The bill requires that the FDIC Inspector General, within 1 year of enactment of this bill, will conduct a study on the impact of the failure of banks and report the results and any associated recommendations back to Congress.

This study would address, one, the effect of the FDIC's use of loss sharing agreements on relevant stakeholders, including banks that survive and borrowers of the failed IDI. Two, the significance that paper losses, including the extent to which they trigger IDI receiverships and the impact they have on raising more capital. Three, the success of field examiners in implementing the FDIC policies and procedures on commercial real estate workouts.

One of the things we find in our State of Georgia, one of the common characteristics that sort of held these banks separate was the overleverage, we shall say, of the portfolios in real estate and the housing bubble burst on us.

Four, the application and impact of consent orders and cease and desist orders, including whether such orders are used consistently across all types of banks, and also the application and impact of FDIC policies, particularly as they relate to a bank's ability to attract private capital. And then the FDIC's handling of potential investments by private equity companies in banks.

In H.R. 2056, as introduced, we received great bipartisan support and reception at a hearing that we recently had that my colleague from Georgia (Mr. Westmoreland) mentioned and the FDIC and the OCC are working with us on this bill. And the OCC has suggested that the FDIC Inspector General should consult with the OCC Inspectors General with respect to studied topics that pertain to banks that the OCC, which is the Office of the Comptroller of the Currency, directly supervisors and, of course, that same logic would argue for consultation with the Fed.

So subsequently, an amendment was adopted by voice vote in the full committee in the markup, requiring that the FDIC Inspector General consult with the Inspectors General of the Treasury, within which the OIC is housed, and the Fed. This amendment was passed by voice vote with strong bipartisan support to supplement the study factors regarding the loss sharing agreements. It added new study factors regarding appraisals and capital. It required the FDIC's Inspectors General to coordinate with the Treasury and the Fed's internal Inspectors General. And four, it added a new separate GAO study on bank failures to the report due 1 year after enactment. And I might add that both the FDIC as well as the OCC are supportive of this measure.

In conclusion, Mr. Speaker, this bill is very important for us not only in Georgia but across this country where we've had this rash of bank failures. It's important for us to learn and to know about the causes of the bank failures in the States that have been hardest hit, especially the issue of application and effect of consent orders and cease and desist orders, particularly where these orders have been enforced uniformly and fairly across all banks. This has been a concern from our banking community in Georgia.

While I know this bill alone will not solve our current banking crisis, I am confident it will provide Congress and regulators with valuable information that may prevent failures in the future and provide us with ways that the FDIC, that the OCC and the Fed, our banking regulators and examiners, can help our banks avoid bank failures.

If we're ever going to climb out of this terrible economic malaise that we're in and spark growth in our communities, it is the banks that must be stable. It is the banks that must be well-capitalized and able to lend to consumers and small businesses. And in particular, our small and community banks are the ones that will lead the way to our economic recovery, but only if they're able to work, hand-in-hand, with our Federal regulators and examiners to remain viable.

This bill is a small step, but it is a big step in the right direction in that respect, and I encourage all of my colleagues to support it.

I yield back the balance of my time.

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