Federal Reserve Board Governor Roger W. Ferguson Jr. on Thursday said the government should consider restricting deposit insurance coverage.
"A touchstone of future regulatory reform might be either a narrowing of the banks covered by full deposit insurance or a reduction of insurance coverage," Mr. Ferguson said at a conference sponsored by the Ohio department of commerce.
"The clear goal should be to reduce moral hazard and hence the regulation imposed upon our banking system."
Mr. Ferguson suggested exempting some types of deposits from insurance, although he did not cite specific products.
The Fed governor also gave tentative support for an idea recently floated by the Bankers Roundtable to require banks to issue subordinated debt to unrelated parties. To protect their investments, these bondholders would then closely monitor the banks' performances, reducing the need for government supervision.
"An active market in such debt would give banks and their investors an incentive to bring more transparency to the banking endeavor and could be quite useful for more market-based supervision," Mr. Ferguson said.
Mr. Ferguson also said it is time to reconsider bank capital rules. A new system that uses computer models to tailor capital requirements to a bank's investment choices would be more effective, he said.
To encourage the development of new electronic payment products, the Fed should reduce regulatory barriers to their use. "It is much too early to regulate these new products," he said.
Mr. Ferguson also said he supports the Fed's current policy of using market share data to determine the competitive effects of mergers. "We should remain alert to any evidence that new technologies and delivery channels are making the current approach to market definition obsolete," he said. "Based on survey evidence, that time is not yet at hand."
