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Save The Small Banks

The Federal Financial Rescue Has Ignored Institutions That Drive Much Of The Economy

October 14, 2009|By Eugene A. Ludwig

Certainly, we should develop methodologies so that the healthy parts of the banking system, including community and regional banks, should not be required to pay extra FDIC assessments - right in the middle of the fiscal crisis - to make up for the sins of less well run institutions.

Right now, the FDIC has little choice but to make these assessments. However, Congress, with the encouragement of the entire regulatory community, should step in and at least temporarily replenish the FDIC fund, giving banks time to fully recover before paying additional assessments.

And indeed, a strong case can be made that the healthy banks should never pay the tab. After all, the strong banks did not cause the fund loss and had no way of causing the weak banks to perform more prudently. Assessing the healthy banks for the weak banks' past sins simply serves to make the whole system weaker.

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Taking these steps will help to restore credit availability more quickly and revive our economy to everyone's benefit.

Eugene A. Ludwig is a former U.S. Comptroller of the Currency and founder and CEO of Promontory Financial Group, a Washington, D.C.-based global financial services consulting firm. His e-mail is pr@promontory.com. The commentary was first published in American Banker.

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