Banking
Seeking FDIC's Seal of Approval
Marshall Islands Aims to Follow in FSM's Footsteps
The U.S. government has offered the Bank of Marshall Islands an opportunity to become only the second bank outside of the United States to qualify for Federal Deposit Insurance Corporation (FDIC) status.
In the mid-1980s, as the Compact of Free Association first went into effect, the Bank of the Federated States of Micronesia applied for and was granted FDIC-backed insurance. But when the Bank of Marshall Islands sought to apply, following the precedent set by the Bank of the FSM, FDIC slammed the door, refusing to even entertain an application.
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When repeated requests were rebuffed by FDIC in the early 1990s, officials from Bank of Marshall Islands and the Marshall Islands national government gave up asking. That attitude prevailed for the life of the first Compact. Then, during a visit to Washington last November by President Kessai Note, which included a meeting with Vice President Dick Cheney, the FDIC relented, saying it would review an application from Bank of Marshall Islands. Both Bank of Marshall Islands President Patrick Chen and Foreign Secretary Marie Maddison credited U.S. Ambassador to the Marshall Islands Michael Senko with assisting in getting the FDIC to agree to review an application from Bank of Marshall Islands.
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Bank officials in Majuro began working on application requirements almost immediately. An FDIC official visited in February, further moving the application process forward. Chen believes that FDIC insurance coverage could have significant benefits for the Marshall Islands, but approval isn’t a guarantee. He expects it to take up to 18 months, with FDIC sending a series of inspectors out to assess the bank to insure compliance with FDIC requirements.
M. E. “Bud” Wood, who took over as Bank of the FSM president recently, confirms the rigorous “examination” by FDIC, which is done once or twice a year now that his bank is insured. He says for his bank the most beneficial aspect of being FDIC insured “is the confidence it gives the public in doing business with our bank.”
“If we didn’t have deposit insurance for our bank, it wouldn’t have been as successful as it’s been,” Wood says. Unaudited figures for 2001 show Bank of the FSM deposits at $45.5 million, a 10 percent increase over the previous year. Its net profits for 2001 of about $1.3 million are also up from 2000. A significant proportion of the bank’s deposit and loan business comes from FSM national and state governments and agencies, some of which require use of FDIC insurance covered banks.
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While in the U.S. banking customers take deposit insurance for granted, that’s not the case in smaller countries. FDIC status, Wood says, is of particular significance in a small, developing nation such as the FSM that lacks the resources and expertise for its own deposit insurance. “The credibility and underwriting of FDIC is important to maintaining sustainability of efforts at self-reliance,” he adds.
But while “confidence” and “credibility” are an important aspect of FDIC backing, there are other more tangible benefits. The Compacts with both countries specify that certain funds can only be invested with FDIC-insured institutions, and a number of agencies — such as social security retirement programs — have this same requirement, a rule that has left Bank of Marshall Islands largely out of the picture since Compact funding began flowing in 1986.
Bank of Marshall Islands sees the possibility — if it can qualify for FDIC status — of gaining at least a portion of investments from four nuclear test-affected islands that have U.S.-provided trust funds running into the hundreds of millions of dollars, and from the Marshall Islands national government that operates both nuclear compensation funds and national investment funds. All, however, are barred from investing in non-FDIC covered institutions.
In addition, says Bank of Marshall Islands’ Chen, getting FDIC recognition will give the bank the option of setting up branches in the U.S. where there are large populations of Marshall Islanders, as well as bidding to provide banking services at the U.S. Army’s missile testing range at Kwajalein Atoll — where Bank of Guam currently handles the relatively lucrative banking trade for American and Marshallese missile range workers. Bank of the FSM has already taken advantage of this opportunity by establishing in 2000 a small loan branch in Saipan, home to several thousand FSM citizens.
Photos: Giff Johnson, Bank of FSM
