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ICBA: Additional MMMF Changes Needed
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ICBA issued a statement after the Treasury Department made
modifications to its money
market mutual fund plan and calling for additional changes so that the
MMMF guaranty is not superior to FDIC insurance. The revisions, which
limit money market mutual fund coverage to amounts held at close of
business on Sept. 19, follow ICBA recommendations to eliminate any incentive
for community bank customers to move their money out of community banks
and into the funds.
Federally insured banks have paid tens of billions to the FDIC for
limited coverage. If the new MMMF program is more favorable than
FDIC insurance, deposits will flow out of our communities and community
banks will be unable to fund local credit needs, undermining national
economic growth, ICBA warned policymakers.
"Community
banks are the foundation of our nation's local economies,"
according to the statement from ICBA Chairman Cynthia Blankenship and
President and CEO Cam Fine. "Treasury's changes to the Guaranty
Program are a step forward to allowing local deposits to continue to
stay invested in local communities, providing stability at this time of
financial turmoil."
ICBA continues
to work to ensure the program is temporary; money market mutual funds
fully pay for coverage; and coverage limits are comparable to FDIC
deposit insurance limits. Read ICBA Statement.
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Treasury Adopts ICBA Fix to Money
Market Program
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The Treasury Department announced yesterday that it
accepted ICBA's recommendation to protect community banks when the
agency and federal lawmakers fashion a temporary federal guaranty of
the nation's money market funds. The Money Market Mutual Fund Guaranty
Program will now include ICBA's recommendation to have a federal
guaranty cover only money market balances as of the close of business
last Friday. Treasury officials said they will adopt the ICBA fix of
the Guaranty Program as part of an overall emergency financial industry
rescue plan announced last week.
The Guaranty Program fix, which ICBA on Friday proposed directly and in
a letter to Treasury officials
and lawmakers and in a public statement, will
virtually remove any incentive for depositors to move their funds out
of federally insured bank accounts and into money market mutual funds.
ICBA made its recommendation after hearing from its members that some
confused depositors had begun to withdraw money from their federally
insured accounts because of the Guaranty Program. The program was
announced Friday morning after the worldwide credit markets halted the
previous day as a result of pending bankruptcies of AIG and giant
investment banks on Wall Street.
Before the change was made to the program, ICBA urged Treasury
officials to ensure that community banks are taken into account when
crafting the Guaranty Program. ICBA cautioned Treasury not to propose
any solution to Wall Street's turmoil that will drain funding from
community banks. ICBA conducted a series of meetings and calls with
regulators and members of Congress to ensure they understand the plan
would put community banks at a competitive disadvantage and undermine
the nation's banking system.
Unless fees and guaranty limits under a proposed federal backstop for
money market funds are made comparable to FDIC insurance, the plan
would drain funding from community banks, putting them at a competitive
disadvantage and undermining the nation's banking system, ICBA stated
in its letter to lawmakers and regulators. ICBA stated the money market
Guaranty Program must be temporary, expressing concerns that the
backstop will lead community bank customers to withdraw their bank
deposits and invest them in money market mutual funds. The Guaranty
Program should also be risk-based, requiring money market mutual funds
that pose the greatest risks to the program to pay the highest fees,
the association said.
On Friday, ICBA also posted an Action Alert letter on its
Web site to allow community banks to quickly contact their
congressional representatives on the matter. The letter also reiterates
ICBA's position on the purchase of GSE preferred stock and other
troubled residential or commercial mortgage-related assets, including
how tax treatment should allow for losses on GSE preferred stock.
Last week the Treasury Department released a fact sheet outlining
legislation it submitted to Congress that would authorize the agency to
issue up to $700 billion of Treasury securities to purchase troubled
mortgage assets from financial institutions. Also under the Treasury
plan, Fannie Mae and Freddie Mac would increase their purchases of
mortgage-backed securities, and Treasury would expand the MBS purchase
program announced earlier this month. Administration officials are
working with members of Congress to pass legislation implementing the
plan as soon as this week.
Treasury Secretary Henry Paulson said his department would spend hundreds
of billions of dollars to relieve banks of bad mortgage assets. Fannie
Mae and Freddie Mac would increase their purchases of mortgage-backed
securities, and Treasury would expand the MBS purchase program
announced earlier this month. Administration officials are working with
members of Congress to pass legislation next week that would implement
the plan.
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FDIC Pledges Capital Restoration Flexibility
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The FDIC announced it will work with
financial institutions that have significant holdings of common or
preferred shares in Fannie Mae and Freddie Mac to develop capital
restoration plans pursuant to federal regulations. ICBA has been the
leading advocate for regulator flexibility for community banks that
must adjust their balance sheets following the devaluation of GSE
preferred stock caused by the federal takeover of the mortgage
institutions. ICBA requested the flexibility in a letter to regulators.
The FDIC said equity investments should be reported as
available-for-sale equity securities, if not held for trading purposes,
and any net unrealized losses should be deducted from regulatory
capital. The agency also said it will be flexible in considering
requests for waivers from brokered deposit restrictions for
institutions that have become adequately capitalized.
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Letter Demanding Tax Action Available
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Community bankers can now view an ICBA letter to Treasury Secretary
Henry Paulson and key lawmakers urging policymakers to take action on
the tax consequences of devaluing GSE preferred shares. In the letter,
ICBA President and CEO Cam Fine asks policymakers to address unintended
tax consequences of preferred share write-downs. ICBA also asked that
community banks be allowed to account for Fannie and Freddie preferred
stock as ordinary losses, not capital losses, to receive fair tax
treatment.
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FDIC Reports on Second Quarter Data
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The FDIC released a letter to stakeholders
reporting on the FDIC's activities and accomplishments during the
second quarter of 2008. The letter includes information on
second-quarter commercial bank and savings institution revenue, the
Deposit Insurance Fund balance and a federal survey of unbanked and
underbanked households.
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