Consumers Willing to Pay Extra for Deposit Insurance

SAN FRANCISCO -- More than 90% of bank customers are willing to foot some of the rising cost of deposit insurance, according to a survey coordinated by Deloitte & Touche.

The accounting firm hired the Gallup Organization to ask 731 bank customers what they would do if their bank made them pay for deposit insurance. Only 5% said they would take their deposits out of the banking system.

The public's willingness to pay for deposit insurance has apparently grown since 1989, when the American Banker put forward the idea in its annual consumer survey.

Early that year, the Bush administration floated the notion of a 25-cent tax on every $100 of deposits to shore up the Federal Deposit Insurance Corp. Asked if they would pay the fee if necessary to maintain their coverage, 44% of consumers said yes, 49% no, and the rest undecided.

Pass-Along Scenarios

But two-thirds of 250 bankers, also polled for the Deloitte & Touche study, said they thought depositors would flee the system if the fee for insurance goes too high. The results of the survey were released here at the American Bankers Association's annual convention.

The Federal Deposit Insurance Corp. has tripled the cost of deposit insurance in the last two years to 23 cents for each $100 of deposits, from 8.3 cents. Banks will shell out $5 billion in insurance premiums in 1991.

The Deloitte & Touche study found that 66% of the 250 banks said they are finding some way, or a combination of ways, to pass on some of the higher cost of deposit insurance to customers.

While 35% of bank customers said they would prefer a flat fee to cover insurance costs, only 11% of banks said they are levying such explicit fees.

Instead, 31% of the banks said they have recouped escalating insurance costs by lowering the interest rates paid on deposits. Another 21% said they increased the interest rates charged on loans.

The nation's largest banks are already explicitly charging their corporate customers for deposit insurance, according to Thomas R. Hollenbeck, research director at Alexander Lucey Inc., a Denver-based consulting firm hired by Deloitte & Touche to interpret some of the survey's results.

Mr. Hollenbeck said the money-centers charge $2.30 for every $1,000 a corporate customer has on deposit.

A few banks, including C&S/Sovran Corp.'s Citizens & Southern, are charging a flat fee to retail customers, said bank consultant Barry Deutsch, who assisted Deloitte & Touche.

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