The nation's biggest banks on Tuesday said the deposit insurance system should no longer be backed by the full faith and credit of the federal government.

The Bankers Roundtable, which represents the 125 largest banks, recommended terminating the industry's $30 billion line of credit with the Treasury Department and eliminating the government's policy of rescuing the largest financial institutions.

In a 67-page report, the trade group suggested limiting coverage to $100,000 per person per institution and assessing premiums only on the insured deposits a bank holds.

Scaling back the safety net should relieve banks of choking regulations and hasten passage of legislation allowing banks to affiliate with other financial services companies, said Ernest Ginsberg, vice chairman of Republic National Bank in New York and head of a Roundtable task force on deposit insurance reform.

"What's in it for us?" Mr. Ginsberg asked at a press conference. "We ought to be relieved of a lot of the burdens that are now imposed by the regulatory structure."

In the debate over financial reform, competitors point to deposit insurance as a subsidy that gives banks an advantage over nonbank competitors.

"Reform is needed so deposit insurance can no longer be used as a rationalization for costly and burdensome banking regulations or as an excuse to deny banks the competitive opportunity to offer new products and services to their customers," according to the report.

The Bankers Roundtable, which has been working on this issue for nearly a year, plans to send the report to lawmakers. The American Enterprise Institute is holding a daylong seminar on it Friday.

Reaction to the report Tuesday was largely critical.

Federal Deposit Insurance Corp. Chairman Ricki Helfer called the group's recommendations "anti-consumer."

"The shortsightedness of the Bankers Roundtable proposal is a clear indication of the short memory of the institutions who have certainly benefited from the scope of federal deposit insurance in the '80s and early '90s," she said.

The Bank Insurance Fund became insolvent in the early 1990s and would not have been able to continue rescuing banks without a loan from the Treasury, Ms. Helfer noted.

"Despite what is said, there is always going to be the public perception that the federal government stands FDIC," added Bert Ely, an industry consultant in Alexandria, Va.

Representatives of small banks, which rely on smaller deposits for more of their funds than large banks, rejected the proposal as politically impractical and potentially damaging.

"Doing away with "too big to fail" is a total, self-serving delusion," said Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America. "They (big banks) want out from under insurance premium payments."

Consumers and businesses count on the government to repay deposits and prevent the failure of the largest institutions from sparking a broader financial crisis, said Karen M. Thomas, the IBAA's director of regulatory affairs. "You just won't have the same confidence in the system," she said.

The American Bankers Association was more receptive.

"In principle I think they are right on," said ABA chief economist James H. Chessen. "The question is practically can you break that nexus between the full faith and credit and burdensome regulation? I don't know if we're at that point."

"In principle I think they are right on," said ABA chief econoimst James H. Chessen. "The question is, practically, can you break that nexus between the full faith and credit and burdensome regulation? I don't know if we're at that point."

Mr. Chessen agreed with the Roundtable's conclusion that the industry gets no benefit from the government's backing of the FDIC.

"The need for the full faith and credit backing of the government is practically nonexistent now," he said. "The banks cover every dime" the FDIC needs to resolve bank failures.

The Bank Insurance Fund currently has $27 billion in reserves to pay for future failures. If more money is needed, the FDIC can levy premiums on banks or a private line of credit could be set up, the Roundtable said.

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