Deposit insurance seems to be a dead letter in Congress' mailbox nowadays. Ther is a proposal to merge the wobbly Savings Association Insurance Fund into the well-heeled Bank Insurance Fund, which Paul Schosberg of the Savings and Community Bankers of America writes about in this month's Final Say column. But the rationale behind deposit insurance hasn't been widely debated since 1991, when banking was in the throes of crisis and Congress passed the FDIC Improvement Act.

That time of darkness has long since passed, and the bank insurance fund, after reporting a $7 billion deficit less than three years ago, should be recapitalized by the end of 1995. Now is a good time for banks to reconsider whether deposit insurance is worth the cost--and not just in terms of their annual premium assessments. I would submit that a greater burden by far is the justification to control and manipulate, beginning with Congress and extending to the regulatory authorities, that it creates.

Deposit insurance continues to be a central issue in banking, even if it's not on the front burner. Consider the industry's accelerating loss of market share to nonbank competitors. Bankers like Norwest Corp. CEO Richard Kovacevich argue that they need approval to sell a broader array of products and services, as well as a reduction in the cost and restrictiveness of regulation, to compete with the likes of Merrill, Lynch & Co. Perhaps, but seeking to broaden the industry's product powers or reduce its regulatory burden without addressing this deposit insurance-inspired mandate to regulate could very well conclude in failure.

The American Bankers Association does not advocate an end to deposit insurance despite its prohibitive cost. Rather, the trade group argues that Congress--compelled by a variety of factors, including its inherent populism--would keep the industry on a short leash even in the absence of deposit insurance.

Certainly an end to the program runs counter to the entrenched interests of bot Congress and the banking regulators. Congress may well see a greater public goo in maintaining deposit insurance, given its calming effect on the public when times aren't good, than in making the banking industry more competitive, especially since government doesn't pay to maintain the program--banks do. And the regulators might be expected to act as bureaucrats are wont to do when thei interests are threatened. Take away the mandate to regulate and you directly imperil their position.

It's not that deposit insurance no longer serves a useful purpose. A great many bankers, especially those at smaller institutions, would oppose its elimination But every benefit has its cost--and from the industry's perspective, the price tag for this one may have increased disproportionately to its value. The issue deserves to be looked at again because all discussions about the regulatory burden flow from the same headwaters. Says a senior European banker who runs hi institution's North American operation, and is a savvy observer of our banking market, "It all comes back to deposit insurance. As long as deposits are insured, the government will have a very difficult time letting go."

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