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Deposit Insurance Faces Changes

Associations Approve FDIC Recommendations
The three leading banking associations have declared a united front on the subject of deposit insurance changes. The American Bankers Association, the Independent Community Bankers of America and America's Community Bankers all put the stamp of approval on FDIC's recommendations for reforming the deposit insurance system.

FDIC chairman Donna Tanoue pointed out that the last eight consecutive years of record earnings does not guarantee the coming year will be the same. Part of her message in a speech in Las Vegas at the ICBA's annual meeting last week was that "...good times don't last forever. When bad times return, more banks will naturally fail."

She pointed out that the economic slowdown the country is now experiencing has put a degree of urgency on deposit reform.

The recommendations approved by the banking associations include eliminating the $1.25 in federal reserves for every $100 of insured deposits - replacing it with a more flexible target - suggesting that if the funds went too far over the target, institutions should get a rebate based on past contributions. This was in response to the growing concern of fast growing institutions that have increased insured deposits at a record level over the past year - in particular, some bankers noted, of those like Merrill Lynch & Co. which moved more than $48 billion into insured accounts during the past 9 months.

Rebates would be based on the period of time contributions had been made to the insurance fund, meaning larger rebates to "old timer" financial institutions and much smaller ones to the new, fast growing institutions, resulting in larger premiums being paid by the newcomers.

Another of the suggestions for change was that of urging Congress to increase the coverage over the $100,000 limit for long-term savings accounts such as 401(k)s and IRAs, and the proposal to tie coverage limit per account to inflation.

Copyright © 2001 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 11, No. 3, 3/01

First published on 03/01/2001

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