FDIC Chief: Confidence at Risk if Deposit Insurance Privatized

Rebutting recent calls to privatize the Federal Deposit Insurance Corp., Chairman Ricki Helfer insisted Wednesday there can be no substitute for the government's backing.

"To inspire confidence during a period of turmoil, deposit insurance must ... be comprehensive," she said. "The problem with private plans ... is the limited pool of resources on which they can draw, as compared to the unlimited pool of resources of the federal government."

Ms. Helfer staked out her position at a dinner sponsored by the Bank Administration Institute, the same research and education group that recently recommended the FDIC be replaced with a line of credit from private-sector banks.

Without the government's deposit insurance, BAI concluded, the industry would be better positioned to argue for new powers and a reduction in regulations.

"Bankers see this as the key to gaining some meaningful financial modernization and regulatory relief," said BAI executive vice president David Taylor. "A lot of people around the industry are talking about deposit insurance reform."

Indeed, the Bankers Roundtable has formed a committee to study deposit insurance issues headed by Republic New York Corp. chairman Ernest Ginsberg.

"We're opening the whole book on the FDIC, looking at every aspect of deposit insurance," said Alfred M. Pollard, the big-bank trade group's senior director of legislative affairs. "A lot of regulation comes about because of federal deposit insurance."

The debate could heat up next year when Congress considers repealing the law separating commercial banks from securities and insurance firms or even ending the barrier between banking and commerce.

If the walls between commercial banking and other financial services are torn down, policymakers would have to decide where to draw the line on deposit insurance.

"This issue is coming to a head whether people like it or not," industry consultant Bert Ely said. "If you have insurance companies, securities firms, and the Fidelities of the world directly owning banks, safety net concerns are going to be on the table."

Ms. Helfer did not confront this possibility but noted that deposit insurance had been created "not to protect individual banks - but to protect the depositor.

"It was intended to be one of the few certainties in an uncertain financial world."

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