WASHINGTON - In a move to appease thrifts and small banks, the American Bankers Association has altered its stance on deposit insurance reform.

The group's chief lobbyist, Edward L. Yingling, said Friday that it will no longer insist the Office of Thrift Supervision and the Office of the Comptroller of the Currency be combined as a condition of merging the bank and thrift deposit insurance funds. The ABA had previously demanded the agencies be combined, but thrifts steadfastly opposed losing their regulator.

"The ABA's survey work shows that this is not a priority for most commercial banks and that a number of them believe having an additional regulatory option is a positive," Mr. Yingling said. And, he said, "significant opposition to such a combination among many savings institutions" still exists.

This comes on the heels of the ABA's decision this year to abandon another key condition for merging the funds that had angered thrifts - combining the commercial bank and thrift charters.

The policy shift did not fully satisfy thrift industry officials, however. Though pleased that the ABA has severed the tie between deposit insurance reform and consolidation of the OTS and OCC, America's Community Bankers president Diane M. Casey said the ABA is not trying hard enough to lobby Congress to combine the funds. "The merger of the funds is something that should happen this year," she said.

Mr. Yingling replied that the ABA is aiming for a big push next spring because election-year politics and other obstacles make the chances of passing legislation this year slim.

He noted that reform faces stiff political opposition from Senate Banking Committee Chairman Phil Gramm, R-Tex., who plans to fight attempts to raise the coverage level, and from Treasury Department officials, who oppose paying rebates from the funds.

In a bow to smaller banks, the ABA also has established a task force to study whether insurance coverage should be increased for deposits made by municipal government entities. While the Independent Community Bankers of America has made 100% insurance coverage of municipal deposits a priority, Mr. Yingling shied away from endorsing that proposal.

The ABA board adopted these changes Thursday, but otherwise reaffirmed its priorities for deposit insurance reform legislation, including doubling the $100,000 coverage level, permanently indexing coverage for inflation, and capping the funds and providing rebates.

To gauge the cost of increased coverage, the ABA also plans to undertake a study - which could be ready as soon as this fall - examining how additional deposits could dilute reserves.

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