Title: Deposit Insurance Reform: The Next Big Issue?
Abstract: DEPOSIT INSURANCE REform issues have begun to crystallize since FDIC issued an insurance options paper in August. With one exception, FDIC didn't take a specific stand on any of the potential reforms that it raised in its 84-page paper. However, it is coming to be accepted thinking in Washington that between the lines FDIC has made it clear that it believes all banks should be paying something for insurance again. Where the banking industry finally comes down on many of the individual particulars will depend on how individual bankers perceive that their chosen way of banking will be affected. For example, take the issue of new deposits--that is, deposits brought under the umbrella of FDIC protection by a new institution, or an institution that has found a way of attracting deposits that doesn't require it to pay for the privilege of coming under that umbrella. Technically such deposits are subject to deposit insurance assessments, but only a handful of institution currently pay premiums. Thus, since the insurance funds were recapitalized, 844 new banks and thrifts have never had to pay. These newcomers are often perceived as having a ride, courtesy of all the banks that have spent decades paying into the Bank Insurance Fund and standing behind it. Some bankers, feeling the brunt of nonbank competition, may feel quite strongly about Merrill Lynch. That firm's program of offering customers an insured deposit alternative to brokerage products pulled in enough deposits over this year that in some quarters it is feared that it will reduce the Bank Insurance Fund's ratio all by itself. That banker may feel Merrill has crowded under the umbrella at his expense--and every other BIF member's. Another banker, head of a de novo bank, may be quite happy that this state of affairs exists, for it also means that his new bank has acquired BIF protection without having to pay initiation dues to join the club. Under current law, FDIC can't charge new institutions an entrance fee for joining BIF. Or take the issue of providing deposit insurance protection for municipal deposits. One community banker, from Kansas, recently told ABA Banking Journal that You can give my bank another five years of the old way of doing things if you'll just do something about public funds. His bank relies on municipal deposits for a larger-than-average portion of its funding base and he, like some other heavy users of public deposits, would like to switch to the relative simplicity of deposit insurance. It would allow such banks to walk away from the often-tricky world of pledging and free up that money for something more productive. Other bankers put more stock in attempts being studied to convince state and municipal treasurers to amend the pledging process. This is being explored at the state level, in some cases, as well as at the national level through trade groups. Then there is the matter of increasing the amount of deposits that are covered by FDIC insurance. It is generally acknowledged that the current $100,000 ceiling on isn't as meaningful as it once was, due to inflation. However, changing that level of (most often, people speak of doubling that number) would change the BIF's coverage ratio, as would any move to pull more deposits under the BIF umbrella. Some bankers are quite certain that doubling the ceiling would bring more funds back into their banks. …
Publication Year: 2000
Publication Date: 2000-10-01
Language: en
Type: article
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