WASHINGTON - Looking ahead to next year's legislative agenda, Rep. Tom Petri on Wednesday introduced a bill to privatize the deposit insurance system.
Rep. Petri, a Republican from Wisconsin, said the measure could cut premiums to as little as 4 cents per $100 for large, well-run banks.
The proposal has virtually no chance of winning approval this year, but Rep. Petri and his supporters are hoping to make an early start when Congress resumes work next year.
Under the bill, each bank or thrift would enter into a contract with a syndicate of banks, thrifts, pension funds, and insurance companies to guarantee all of its deposits.
The guarantors would put their own money at risk, giving them a strong incentive to appraise and monitor risk realistically in insured institutions' loan portfolios.
Small Role for FDIC
The Federal Deposit Insurance Corp. would maintain some supervisory authority and would continue to operate a small backup fund. But with private-sector money at risk, a large number of "safety and soundness regulations" could be dropped.
The bill embodies the ideas of Alexandria, Va.-based consultant Bert Ely, who has long championed a system of cross guarantees.
Mr. Ely argues that deposit insurance - whose premiums are to rise next year to an average of 25.4 cents per $100 of domestic deposits - is overpriced, especially for sound institutions.
Small Banks Would Pay More
Mr. Ely said smaller banks would pay more for their insurance, perhaps 10 cents per $100 of deposits, even if they are well run. But he said small banks would benefit more than large institutions from an easing of regulation.
The Petri bill drew quick support from the U.S. Chamber of Commerce. Lawrence A. Hunter, the body's vice president and chief economist, said the measure would "depoliticize banking" and help revive the economy.
The bill's passage would "go a long way toward eliminating the small-business credit crunch by cutting back on the necessity for stringent federal regulation of banking," Mr. Hunter said.