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House Unanimously Approves Bill To Review Economic Impact Of FDIC Practices


Washington, Jul 29 -

The U.S. House of Representatives has approved legislation to thoroughly review the causes of recent bank failures as well as the impact of the FDIC’s practices and procedures on community banks.

H.R. 2056, introduced by Financial Services Committee Member Rep. Lynn Westmoreland, requires the Inspector General of the FDIC to study issues raised by recent bank failures and report back to Congress.  The bill also calls on the Government Accountability Office to study the causes of high levels of bank failures and the counter cyclical impact of fair value accounting standards.

Committee Chairman Spencer Bachus said, “The Financial Services Committee has been working to identify the impact that government policies and regulations have on economic activity, and this legislation is a part of our review.  Virtually every Member of Congress has heard the concerns of small business owners and community bankers about overzealous regulators. No one wants regulators to allow unsafe practices, but no one wants regulators to stifle a potential economic recovery by applying regulatory standards in ways that needlessly inhibit bank lending.  I urge the Senate to take action on this bill and get it to the President’s desk as soon as possible.”

After a six-year period in which only 35 banks failed nationwide, the pace of bank failures increased dramatically in the past two years:  140 institutions failed in 2009 and another 157 failed in 2010. These failures have been concentrated in certain states.  Since 2008, 10 states have had more than 10 bank failures. The rash of bank failures has led some to question whether the FDIC's procedures for resolving troubled banks are appropriate in light of current economic conditions and whether these procedures have been consistently applied in the wake of the financial crisis.

Rep. Westmoreland said, “I understand that some of these banks failed because they needed to fail.  But when you see high failure rates like we have in Georgia – with 25 percent of our banks failing since 2008 – you have to look for the underlying causes.  According to the bankers I’ve spoken to, some of the blame lies with overly zealous regulators.  My bill will allow the proper authorities to look into the policies used by the FDIC and determine whether those policies are doing more harm than good.”