TO ensure the security of bank deposits and prevent another bank fraud following the Bank of Saipan fiasco, the House of Representatives is now drafting at least two measures to address such problems.
House Speaker Heinz S. Hofschneider told reporters yesterday that they were developing legislation that would require banks and financial institutions to make their securities in the form of treasury bills “as opposed to assets that are in themselves at risk.”
He added, “So long as you secure government deposits with equivalent value in terms of hard cash like T-bills,” it is not likely that “we will face this problem in the future.”
Hofschneider, R-Saipan, said they would also propose limiting the amount of government deposits in banks not insured by the Federal Deposit Insurance Corp.
A second measure would allow a federal banking institution or agency “to go around and do unannounced audits on the viability of banks.”
Based on a recent report released by the Office of the Public Auditor, over $23 million of CNMI government funds are deposited in non-FDIC banks. OPA said that although non-FDIC banks utilized by the CNMI government may have pledged security, there is no guarantee that these securities are adequate.
The main problem of the banking industry, the speaker said, “lies in the undercapitalization and securities of existing banks and the potential for a bank run to occur.”
This, he said, could be addressed through the second measure. “We can adopt a system whereby the local banking commissioner has the unilateral right to go in and look at the books at any given time particularly when he is given (information or leads) about a situation developing in a particular bank.”
He said disclosure of bank activities “is a must” to the extent that transfer of controls or ownership of the banks must be accompanied by public notice “so that everyone is informed about the possibility of shifting controls…and the transfer or sale or shares.”
“I think it is a minimal requirement that we have to impose because depositors themselves have the right to know about the solvency of banks,” he added.B
