The Federal Deposit Insurance Corp. on Thursday rejected a request from community bankers to consider raising its $100,000 coverage cap.

FDIC Chairman Donna Tanoue said policymakers should not consider expanding insurance coverage until the bank and thrift funds are merged. Any increase also should wait until reforms Congress enacted in 1991 to prevent another S&L crisis are tested by an economic downturn, she added.

"It is reasonable to ask whether the level of deposit insurance coverage should be indexed in some fashion," Ms. Tanoue wrote. However, the jump to $100,000 in 1980 was "partially responsible for the thrift and banking problems that followed and ... exacerbated deposit insurance fund losses."

Ms. Tanoue was responding to a mid-April inquiry from the Independent Community Bankers of America, which asked the FDIC to study how an increase in the insurance cap might affect taxpayers.

"We're disappointed," said Karen M. Thomas, the ICBA's director of regulatory affairs. "After 20 years, it's time to take a look at the coverage level."

Ms. Thomas said the $100,000 insurance cap is too low and puts community banks at a competitive disadvantage with their larger peers. The current dollar limit has lost about half its value since 1980 because of inflation, she said.

"We remain concerned that stagnant coverage levels are discouraging people from keeping funds in community banks," Ms. Thomas said. "The large banks have two advantages. One, they're 'too big to fail.' Second, ... they have the ability to go to the capital markets to raise funding."

By contrast, Ms. Thomas said, community banks rely heavily on retail deposits to fund their investments. And unlike large banks, they are unlikely to be propped up by regulators in troubled economic times, because their failure would pose little risk to national financial stability.

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