Stricter limits on deposit insurance urged


WASHINGTON -- The Bush administration will be calling next week for a strict limit of $100,000 per person for federal deposit insurance coverage on bank accounts, officials said yesterday.

As the chief of the Federal Deposit Insurance Corp. disclosed that the insurance funds would be nearly exhausted by the end of the year, administration officials said President Bush's plan to revamp the bank laws will ask Congress to limit coverage to $100,000 for any combination of insured checking and savings accounts.

Another $100,000 would be allowed for any combination of retirement accounts.

The current legal ceiling is $100,000 per account, no matter how many banks a depositor uses. But deposits in large banks that have failed have been covered regardless of the size of the accounts.

Under the proposed limit on deposit insurance, the details of which have not been completed, all bank accounts would be identified by Social Security numbers. If a bank failed, the FDIC would use those numbers to list all the accounts held by depositors in the insolvent bank.

If a depositor, for example, held an account of $90,000 in the failed bank and $60,000 in another bank, the FDIC would total the two accounts, to reach $150,000.

Since the maximum insurance of $100,000 would cover two-thirds of the total, the depositor would receive two-thirds of the $90,000 in the defunct bank, or $60,000 from government insurance. Once the assets of the failed bank were sold, the depositor could receive the remaining $30,000.

The Treasury assumes that private insurance, obtained by the banks, would cover the portion of deposits that exceed $100,000.

The proposal, which Treasury officials described in September to the Senate Banking Committee, is certain to be highly controversial on Capitol Hill and among bankers.

A member of the Federal Reserve Board, John LaWare, said at a meeting of bankers in New York that the idea raised "the very serious danger of deposit migration," in which many depositors would move accounts from smaller banks to larger banks, which are felt to be more secure.

The administration plan, which would be phased in over six years, is part of a comprehensive package overhauling the nation's banking laws that will be announced next week by the Treasury Department.

The proposal would also permit banks and securities firms to merge and would remove the barriers that severely limit interstate banking.

The package also would adopt so-called risk-based contributions banks to the federal insurance fund. That would give the fund the ability to tie the premiums to the health of an institution, as measured by its capital and income. Now, institutions pay a flat ++ premium, regardless of their risk of becoming insolvent.

Meanwhile, L. William Seidman, the FDIC chairman, said at a news briefing on the fund's condition that it would be down to $3.9 billion at the end of this year and to $2.4 billion by the end of 1992, assuming a shallow recession that ends by summer.

Those levels were called insufficient to insure about $2 trillion in deposits.

He forecast that the number of bank failures will range between 180 and 230 this year, and between 160 and 210 next year -- projections he again based on a mild recession ending in mid-1991.

Should the downturn be protracted and deeper than expected, he said, the insurance fund would be depleted by the end of this year and show a deficit of $5.8 billion by the end of 1992.

Even without a severe recession, the fund will need about $10 billion over the next two years in increased bank contributions, said Mr. Seidman, who met later in the day with banking officials to discuss the plight of the fund, which is at its lowest level since its creation 56 years ago.

At the end of last year, the fund had $8.5 billion, down from $13.2 billion at the end of 1989. The funds were drained to handle 169 bank failures in 1990.

Earlier this week, the Congressional Budget Office presented a more bleak assessment of the insurance fund, predicting its resources would be exhausted by the end of this year, even with a mild recession that ended by summer.

The CBO recommended that the FDIC borrow $11 billion from the Treasury to meet the shortfall, but Mr. Seidman said higher bank premiums could deal with the problem.

"At this point, I don't see any likelihood that we will have to go to the taxpayer," he said. "There is no crisis here."

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