WASHINGTON — Whether a banker wants the Federal Deposit Insurance Corp. to extend its blanket guarantee for non-interest-bearing deposits turns mainly on his view of the economy.

JPMorgan Chase & Co., Wells Fargo & Co. and BB&T Corp. all oppose an extension beyond yearend, arguing the need for the Transaction Account Guarantee Program has faded.

"Conditions in the financial industry have improved significantly since the introduction of the" program last October, Donna Goodrich, a senior executive vice president at BB&T told the FDIC in a letter. "Financial institutions are now able to access the capital markets to issue both debt and equity. These are positive signs that public confidence in the financial services has been restored."

But other institutions, particularly banks in areas hard hit by failures, warned that depositors remain nervous and TAG is still needed.

"The client-base sensitivity to insured deposits is extreme," Chad Bense, a vice president at $165 million-asset Minnesota National Bank, wrote in a letter. "The environment created warrants the continuation of the program beyond 2009."

Chris Cole, a senior regulatory counsel for the Independent Community Bankers of America, urged the FDIC to go beyond the six-month extension it proposed.

"Particularly in those areas of the country like Georgia, Florida, California and the Southwest, it is very important that this program continue an additional 12 months to allow additional time for those areas to stabilize," Cole wrote.

The American Bankers Association did not go that far. It supported a six-month extension, and noted that many banks will not view opting out as an option. "Many banks chose to participate originally because they were concerned that to opt out would put them at a competitive disadvantage," wrote Robert W. Strand, a senior economist with the ABA. "This pressure does not disappear, and at 25 basis points would represent a high cost for some institutions."

The TAG program, launched in October 2008, provides unlimited deposit insurance for certain transaction accounts that do not bear interest. The coverage has been widely popular; as of May, only about 1,100 institutions had opted out. The benefit is intended mostly for accounts that business customers use to pay their employees and other expenses.

In June, the agency proposed two options: let the program expire at yearend or extend it for six months and raise the premium rates charged for the insurance to 25 basis points from 10.

"Twenty-five basis points is a nonstarter for most institutions," James Chessen, the ABA's chief economist, said in an interview. "Something closer to 10 — perhaps even 15 — might draw broader participation."

A related program that allows institutions to pay the FDIC to guarantee their senior debt has already been extended for four months, until Oct. 31. But it has not imposed any costs on the agency; in June the FDIC reported that it had paid out $840 million to honor the deposit guarantees, while collecting only $700 million in fees.

Some banks are arguing for a longer extension than six months.

"I am writing to … request that the TAG Program be extended indefinitely under its current structure," wrote Ronald D. Paul, the chairman of $1.5 billion-asset EagleBank in Bethesda, Md., in a July 13 letter.

SunTrust Banks Inc., meanwhile, suggested a more gradual wind-down.

"The concern with either of the FDIC's proposed alternatives is that they each create a potential 'cliff event' for both financial institutions and depositors of relatively large balances," Mark A. Chancy, SunTrust's chief financial officer, wrote in a July 24 letter. For those depositors, he said, "a graduated scale back is needed to provide them assurance that their deposits are safe."

Chancy proposed that the amount of the guarantee drop by intervals every year starting Jan. 1. At the beginning of 2010, the FDIC would guarantee balances up to $5 million. It would then step down to $2.5 million in 2011, $1 million in 2012 and between $250,000 and $999,999 in 2013. No extra coverage would be available in 2014.

But other bankers said the sooner the program ends, the better.

"Weaker banks that may urge extension of the TAG program in order to shore up customer deposit balances, do so at the expense of safer, more risk-averse financial institutions," wrote James E. Shreiner, senior executive vice president at Fulton Financial Corp. in Lancaster, Pa., which owns community institutions in the Middle Atlantic region and the $8 billion-asset Fulton Bank.

Some opponents suggested that maintaining the program posed a competitive problem if their rivals, who may be in a weaker liquidity position, chose to stay in the program. (Under the FDIC plan, if the agency chose to extend the coverage, banks now participating in the program would have a one-time window to opt out.)

"The overriding theme to our opposition is that our participation in the TAG program came, not from need, but from competitive pressure," wrote Jeff Asher, a senior vice president at $9.7 billion-asset FirstBank Holding Co. in Lakewood, Colo., which owns institutions throughout the state.

The "increased fees" with an extension "are particularly distasteful in this light," he added.

While the 85 comment letters filed on the question did not break down cleanly as big versus small banks, Frank Bonaventure Jr., a principal at the Ober Kaler law firm in Baltimore, said many small institutions are arguing for an extension of this program as an offset to the perception that large banks are viewed as safer because of their size.

"The smaller banks are feeling that they need whatever protections they can get to maintain public confidence," Bonaventure, a former senior counsel at the Office of the Comptroller of the Currency, said in an interview. "The larger banks probably feel: We're over that hump. We've gone though the stress analysis, and we're fine. … Why have extra costs, which is what this is all about?"

Large banks that favor an extension include SunTrust, Regions Financial Corp. and U.S. Bancorp.

"We are supportive of the extension of the program to June 30, 2010, but suggest a declaration that this will be the last extension," wrote Kenneth D. Nelson, executive vice president and treasurer for U.S. Bank.

"It really has nothing to do with big versus small," said a large-bank source. "It more has to do with: Where are we in this crisis?"

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