During Wednesday’s U.S. House Financial Services Committee hearing on the “Federal Regulators’ Response to Recent Bank Failures” hearing, Congressman Frank Lucas asked Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg to consider the impact on community banks as an assessment is considered to cover the uninsured deposits at Silicon Valley Bank. The FDIC is beginning the process to have banks pay an assessment to cover the losses.
Lucas made the point during questioning that community banks were nearly wiped out during the 1982 Penn Square Bank collapse, which begin in Oklahoma. He says that community banks are concerned that they will have to carry the load when it was the more sophisticated institutions poor decision making that led to the current crisis.
“I’d like to discuss the special assessment fee that will be used to cover the losses from the uninsured deposits. You’ve explained the proposed rulemaking for the special assessment will occur in May of this year. And while you’re thinking about that, be thinking about a discussion of the flexibility the FDIC has during the rulemaking to ensure that our small community banks don’t disproportionately carry the burden. Being one of the older members of this Committee, I’ve been around long enough to have observed firsthand several banking crises. In 1982, I was getting ready for my final semester at Oklahoma State when a little institution in Oklahoma City called Penn Square went down and took First Continental Illinois of Chicago down with it- a bank from the 1840s or 50s- and took First Seattle down with them too. Now, the FDIC and regulators responded in the appropriate fashion and addressed that. But it was a combination of collapse in the oil and gas industry and in production agriculture, and the chain reaction in my great state was the slaughter of community banks,” Lucas said during the hearing.
You can watch the hearing at this link.
