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WASHINGTON, D.C. — America’s Community Bankers urged the Federal Deposit Insurance Corporation today to carefully study all aspects of proposals to modify deposit insurance coverage to ensure that community banks have all the pertinent facts about any changes.

Speaking at a roundtable discussion convened by the FDIC on deposit insurance issues, ACB Chairman William A. Fitzgerald said, without regard to other considerations, virtually all insured depository institutions would welcome an increase in the basic $100,000 of insurance coverage that has prevailed since 1980. He said that inflation has reduced the real value of the coverage by half.

Redressing the erosion in value by increasing the coverage limit to $200,000 and indexing the insured amount going forward "would be useful at a time when deposit growth has been chronically weak," he said. But Fitzgerald warned that if any increase in coverage requires a change in insurance pricing, "the marginal cost of whatever new funds are attracted into the banking system could be very unattractive."

"Before jumping on the bandwagon for increased deposit insurance, ACB members want to know in some detail what the FDIC thinks about premium pricing and the required reserve ratio," Fitzgerald said.

He encouraged the FDIC to pursue a comprehensive investigation and analysis of the factors bearing on any decision to propose changing the present level of coverage. He said ACB is undertaking its own study and analysis of proposals to increase the level of insurance coverage to more accurately assess the costs and benefits of higher coverage levels.

Fitzgerald also said that if an increase in insurance coverage merely resulted in a reshuffling of deposits among banks, a redistribution "might be particularly damaging for smaller community banks and their customers."

He explained that if higher insurance coverage levels encourage consolidation of larger deposit balances in big institutions, the dangers of "too big to fail" may resurface.

Fitzgerald said ACB "strongly supports" the restoration of rebate authority for the FDIC. He said ACB supports retaining the designated reserve ratio at 1.25 percent and capping the ratio at 1.4-1.5 percent. ACB is supporting legislation that would require use of excess reserves to pay the annual Financing Corporation interest payments and, after the FICO obligations are retired, require the excess reserves to be rebated to banks and thrifts.

Fitzgerald also said that the debate over insurance issues "should not delay a more obvious improvement in the health of the FDIC’s funds: the merger of the separate Bank Insurance and Savings Association Insurance Funds. It is clear that a merged fund would be stronger than either fund alone. Merging the funds is an improvement that should be made even as other issues continue to be discussed."

Fitzgerald is also chairman and CEO, Commercial Federal Bank, FSB, Omaha.

A copy of the statement is linked.