WASHINGTON - Industry representatives agreed Tuesday that deposit insurance reform should include higher insurance premiums for new banks and banks with high rates of deposit growth.

At the meeting called by the Federal Deposit Insurance Corp., officials of three major banking trade groups said such banks pose an increasing risk to the Bank and Savings Association Insurance funds.

"A bank can go from zero to $100 billion in deposits overnight and pay nothing," said Thomas J. Sheehan, president of the Independent Community Bankers of America.

Since 1996, 814 banks have been started, and they now have $44 billion of insured deposits, but most have paid nothing for deposit insurance, according to the FDIC. Based on experience, however, the agency expects some of these start-ups to fail.

The trade groups are also concerned that sudden deposit growth could decrease the reserve ratio of the insurance funds, triggering higher premiums for all insured institutions. A $100 billion increase in insured deposits would reduce the Bank Insurance Fund's coverage ratio to 1.31% from 1.37% and the Savings Association Insurance Fund's coverage to 1.27%, from 1.45%, according to the FDIC. By law, if the ratio falls below 1.25% the FDIC must raise premiums.

"There has to be a way to rate deposit growth and put a premium on it," said William Fitzgerald, chairman of America's Community Bankers.

Concerns about rapid flows of money into the deposit insurance system were raised recently when Merrill Lynch & Co. announced plans to move as much as $100 billion from uninsured money market funds into FDIC-insured accounts at two commercial banks it owns.

Roger Watson, the FDIC's director of research and statistics, agreed that some initial fee to enter the deposit insurance fund is needed.

"Any time something is free, you're going to sell a lot of it," Mr. Watson said.

But no one agreed on the right price.

"To date, we haven't done a study on the proper pricing for these special premiums," said James E. Smith, first vice president at the American Bankers Association. "All the issues related to deposit insurance reform need to be on the table before we can do anything."

The three groups agreed to support raising deposit insurance coverage to $200,000 and indexing it to inflation.

On March 7, FDIC Chairman Donna Tanoue announced plans to hold four meetings to gather public comment on deposit insurance reform. The final three meetings, for bank chief executives, will be held in May and June in Minneapolis, Dallas, and Kansas City, Mo.

The agency has said it plans to propose policy options by mid-July and to settle on recommendations by yearend, some of which would require congressional action.

- Kevin Guerrero

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