Banks and thrifts would be barred from promoting their federal deposit insurance in ads for nondeposit investment products under a government proposal released Tuesday.
But in an open meeting, Federal Deposit Insurance Corp. directors asked the industry to comment on how much discretion banks should have and whether the requirement should be dropped in certain instances such as advertisements that address both insured and uninsured deposits. Comments are due in late March.
The proposal builds on a February 1994 policy statement released by all the agencies outlining what banks should tell their customers about nondeposit investments such as mutual funds. The three main disclosures include a statement that these products are not insured by the government.
FDIC board members said the rule is necessary because many customers - 30% of investors in one study cited - don't understand that nondeposit investment products such as mutual funds aren't insured by the FDIC.
But Eugene A. Ludwig, comptroller of the currency and FDIC board member, said the proposal might create "enormous confusion" for customers and burden banks and thrifts needlessly. "By trying to do good, we may be creating a problem," Mr. Ludwig said. "I think this whole area of consumer disclosure is enormously important."
FDIC Chairman Ricki Helfer concurred, noting that times had changed since the rule requiring banks to note they are "member FDIC" was created in 1935.
Industry reaction on Tuesday was cautious.
"We are fully supportive of making sure the customers are informed about what's insured and what's not insured," said James D. McLaughlin, director of regulatory and trust affairs at the American Bankers Association. But ads about multiple products may not be the best place for education, he said.
The FDIC proposal also would require savings associations to use the official "member FDIC" statement in advertising. Home pages on the World Wide Web represent advertising in most if not all cases, and thus require the official ad statement, the FDIC added.
As allowed by Congress last year, the FDIC board approved expansion of the examination cycle to 18 months for healthy banks with less than $250 million of assets.
