WASHINGTON — As the Federal Deposit Insurance Corp. tries to wean the industry off blanket deposit insurance coverage, the vast majority of institutions are resisting.

Under its phase-out for the transaction account guarantee, the FDIC extended the program six months — until June 30 — but made it more expensive. The agency also provided a one-time chance earlier this month for banks to exit the program.

But despite higher fees and a gradually improving economy, nearly 80% of institutions, or more than 6,400, opted to stay in. Most are community banks.

"There are a number of reasons to choose to continue," said Camden Fine, the president and chief executive officer of the Independent Community Bankers of America. "Times are still uncertain."

Bankers and industry representatives said the increased cost — between 15 and 25 basis points — was manageable for smaller institutions, and concerns about the persistent failures and regional economic difficulties have given banks reason to give customers more peace of mind. Banks also do not want to lose out if a nearby rival offers the coverage.

"Certainly, we have national unemployment heading toward 11% and locally in northeast Indiana we are closer to 14%," said Joe Pierce, the president and CEO of the $448 million-asset Farmers State Bank in LaGrange, Ind., which chose to remain in the program.

"The cost for participation is very modest," and customers are "very comfortable with the sound of the guarantee for the transaction account," Pierce said. "It gives them comfort in troubling times. That's regardless of the strength of the individual institution."

Observers said large institutions do not need the program because of the other forms of government aid they have received, and a perception among consumers that they are protected from failure.

"It's the consequence of the moral hazard at play," said Michael Bleier, a former Federal Reserve Board lawyer who is now a lawyer at Reed Smith. "There's been consolidation within the industry and a general sense that the larger institutions are going to be supported by the government one way or another if they encounter" problems.

"For the smaller institutions," Bleier added, "that's the other side of the coin. They feel they need additional government support at this stage of the economic recovery."

The FDIC's six-month extension was intended to give institutions a soft landing for when the agency ultimately stops offering the guarantee.

The original program — meant to help banks dealing with the crisis keep large-deposit business customers — was set to expire at yearend, about 14 months after its launch.

In August the FDIC voted to extend it in order to prevent an abrupt end that could jar customers. But to encourage bankers to quit the program, the agency raised the cost from an initial 10 cents per $100 guaranteed to 15, 20, or 25 cents, depending on how much risk a bank poses. The FDIC gave banks until Nov. 2 to decide if they wanted to remain in the program. Only 525 institutions took the opt-out. (Roughly 1,100 never joined the program.)

Randy Dennis, an Arkansas-based consultant, said the program has improved community banks' image relative to larger competitors.

"It's a huge boon for banks that might be troubled or possibly fail, because it protects the businesses and their checking accounts, which was a huge issue when the early failures were occurring this year," said Dennis, the president of DD&F Consulting Group in Little Rock.

The program, which was launched in 2008 along with an FDIC guarantee of unsecured debt, has hit speed bumps. In June the agency reported that the transaction account guarantee program was in the red as a result of costly failures of institutions that carried large amounts of non-interest-bearing deposits.

Still, observers said they are not worried that the extension overly increases the agency's risk. TAG is part of the FDIC's broader liquidity guarantee program, which is solidly in the black.

Observers said a secondary reason so many institutions chose to stay in the program is to prevent any competitive inequity with neighboring banks.

"I don't think anyone has intrinsic evidence that competitors would use it as a marketing ploy, but there was a perception that if you were not in it, your competitor across the street would say, 'The FDIC has made it available and we think it's in the customers' interest,' " said Robert Azarow, a partner at Sonnenschein Nath & Rosenthal LLP.

Meanwhile, some banks, regardless of size, saw no reason to stay in the program. Gene Smith, the president and CEO of the $45 million-asset Sloan State Bank in Sloan, Iowa, said his customers have been comforted by the steady improvement in the economy, and the bank does not compete with any neighboring institutions that are offering the coverage.

"Our sense of the pulse of our customers is" that their fears have "quieted down a lot from 2008," Smith said. "In 2008, we had some longtime customers and even new customers asking us how we were doing. … That has completely stopped. We don't have any questions about that."

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