THE BERGEN RECORD
February 7, 2005 (Northern NJ)
Banks see a role for CDs in Bush plan
By Richard Newman
Staff Writer
When President Bush promised in his State of the Union address that privatized Social Security accounts would not be "eaten up by hidden Wall Street fees," community bankers said, "Right on!"
Small banks are making an aggressive pitch for including no-fee certificates of deposit in any menu of Social Security investment options.
"We don't charge people for CDs. We pay people for CDs," said Ronald Hermance, chairman and CEO of Paramus-based Hudson City Savings Bank, one of the largest issuers of certificates of deposit in New Jersey.
Bob Davis, executive vice president of America's Community Bankers, said Tuesday that he was "disappointed" but "not overly alarmed" that the White House's initial proposal did not include CDs as an option. "We are aware this is early on. A lot of the nuances and details haven't been discussed yet."
The stakes are especially high for community bankers, who don't want to be left out if their larger competitors benefit from increased business in their existing mutual fund businesses.
Community banks often offer higher rates on certificates of deposit to attract cash needed to fund their mortgage lending businesses. With increased competition from brokerage firms, community banks have been stressing for years the safety of CDs. Their pitch is becoming louder with the potential of millions of new investors having additional funds for retirement.
"Such an option would increase the savings rate and provide people with a federally insured alternative to uninsured equity investments," Diane Casey-Landry, president and CEO of America's Community Bankers, said in a statement soon after Bush's speech.
"It's a much safer investment than investing in Wall Street," added Sam Damiano, president of the New Jersey League of Community Bankers.
Returns, of course, would be modest. Lately, CDs have been paying between 2 and 3 percent on average, although the longest-term accounts pay as high as 5 percent.
But bankers say CDs would be a sensible part of a diversified investment account.
The payout would be "at least comparable to the return they get in the [Treasury] bond market, with no transaction costs," said Hermance.
"We are already in the IRA and Keogh markets, and we value |that base. We wouldn't mind having this as well. I think it would |be a nice long-term source of funding for our main product line, which, for us, is mortgages. We would have a tendency to pay |a little more for it," Hermance said.
But Bush's proposed reforms are by no means a sure thing as Democrats - and some Republicans - are digging in their heels against sweeping reform of the Social Security program.
"Democrats are right for drawing a line in the sand," said Robert Weiner, a veteran Democratic political strategist who was a senior staff member on former Rep. Claude Pepper's Aging Committee.
"This is a program for seniors, not for bankers and Wall Street."