WASHINGTON The Office of the Comptroller of the Currency weighed in on the debate over deposit insurance reform Wednesday by rejecting proposals that would increase coverage.
The agency also recommended that the Federal Deposit Insurance Corp. institute steady premiums on the entire industry, and that the fixed statutory minimum ratio of federal reserves to insured deposits should be changed.
In his first extensive comments on the subject, Comptroller John D. Hawke Jr. disagreed with FDIC Chairman Donna Tanoue by saying that raising coverage above $100,000 per account would run counter to the purpose of the system. Ms. Tanoue has advocated tying coverage to inflation, but Mr. Hawke wrote in a letter to the FDIC that increasing these limits would not further the original purposes of deposit insurance, i.e., to prevent runs on banks and provide a certain basic level of protection for depositors.
If lawmakers decide to increase coverage, then other changes would have to be made, he wrote. Any substantial increases in the limits, without a corresponding increase in premiums and reserves, would weaken market discipline and increase the exposure of the funds.
Mr. Hawke agreed with the FDIC that the current system, in which nearly 95% of the industry does not pay premiums, needs to be changed.
The OCC also believes that a risk-based premium schedule under which a bank can pay nothing for deposit insurance fails to create the incentives intended, he wrote. It also provides a windfall to new and rapidly growing institutions, which can build large insured deposit bases while paying few if any deposit insurance premiums.
Mr. Hawke recommended that the FDIC institute a minimum risk-based premium in conjunction with its reform effort. He also urged lawmakers to merge the bank and thrift insurance funds.
Further, he sided with the industrys call for rebates. Industry trade groups have argued for years that when the ratio of federal reserves to insured deposits is above a certain level, banks should be entitled to some money back.
Mr. Hawke proposed that the current reserves-to-deposits ratio of 1.25% should be eliminated, and the FDIC should establish a target range for the combined deposit insurance fund. Banks would be entitled to rebates if the fund exceeded the upper limit, but could pay surcharges if it fell below the lower limit, he wrote.