Banks should have to pay for deposit insurance no matter how large reserves held by the government get, according to a Federal Reserve researcher.

Ron Feldman, a senior financial analyst at the Federal Reserve Bank of Minneapolis, criticized the current practice of not charging most banks for the government's guarantee simply because the Bank Insurance Fund's reserves exceed $1.25 for every $100 of insured deposits.

Under current law, the Federal Deposit Insurance Corp. may not levy premiums on healthy banks once the fund's reserves total 1.25% of all insured deposits.

When the fund is at, or above that level as it is now, members of Congress and regulators assume that the FDIC is healthy, Mr. Feldman said.

"The fund is a sort of a fiction," he said in an interview. "It tells us nothing about how the FDIC is doing."

Roughly 95% of banks are not paying for deposit insurance, which gives them an incentive to take on more risk, he said.

Premiums that truly reflect risk of failure should be created by taking into account a combination of regulatory bank ratings, capital levels, and available market data including the prices set in reinsurance markets, according to an article published in the current issue of the Minneapolis Fed's quarterly publication, The Region.

In the article, Mr. Feldman recommended abolishing the bank fund and forwarding insurance premiums to the federal government.

Without a Bank Insurance Fund, Congress could not misinterpret the FDIC's health by pointing to its reserves.

If the agency needed money to cover the losses of a failed bank, it would have to tap a line of credit at the Treasury Department.

Mr. Feldman "would like to do away with the fund. We don't think that's a good idea," an FDIC spokesman said, but would not comment further.

However, FDIC Chairman Donna A. Tanoue said recently that the agency may increase premiums paid by the riskiest banks. Having to pay more for the government's backing, she said, would provide a financial incentive to curb risky lending.

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