WASHINGTON - Though the failure of Superior Bank FSB is giving federal regulators a headache, Superior's 816 uninsured depositors - some of whom invested large sums just days before the $2.3 billion-asset Illinois thrift collapsed - are clearly hurting worse.

Their dramatic stories have become ammunition for advocates of higher deposit insurance coverage and increased protection for retirement accounts.

"The Superior case highlights the need for comprehensive deposit insurance reform," Sen. Tim Johnson said in a prepared statement Monday. "As we learn more about the Superior uninsured depositors, we will be in a better position to think through what level of deposit insurance is appropriate in 2001."

The South Dakota Democrat, who is also the chairman of Senate Banking's financial institutions subcommittee, has held two hearings on a comprehensive reform plan released in April by the Federal Deposit Insurance Corp. The agency recommended indexing the current coverage level, $100,000 per account, to inflation.

While supporting other aspects of the FDIC's reform plan, officials at both the Federal Reserve Board and the Treasury Department have opposed raising coverage levels. But Sen. Johnson, who plans to hold more hearings on the topic in October, says he is not convinced. He is working on a bill with his counterpart on the House Financial Services Committee, Rep. Spencer Bachus, R-Ala. Legislation from both lawmakers is expected this fall.

"We in Congress especially have a responsibility to think about the appropriate level of federal insurance of retirement funds," Sen. Johnson said. "We provide tax incentives for people to save for their retirement, and in fact we recently increased those savings incentives. People who set aside relatively modest amounts every year for retirement can easily amass more than $100,000.

"It seems to me the next step for Congress is to make sure that our families have the option of a safe investment for those funds."

The horror stories coming out of Superior include that of a former parcel deliverywoman. Injured on the job, she fought for years for a disability payment and finally succeeded in winning $145,000. She deposited her money in Superior on July 26 - the day before the Hinsdale thrift collapsed. Another casualty, a Chicago-area woman, sold her recently deceased mother's home for $120,000 and deposited the money days before Superior was closed.

Many of the uninsured depositors had retirement savings at Superior, including one person who reportedly had $3 million in an individual retirement account. Anything above the current $100,000 limit is not guaranteed, and those with more now stand to lose a large portion of their life savings.

Estimates of the number of uninsured depositors and the amount they invested in Superior continue to grow. After the bank's closing, FDIC officials said there was about $43 million in uninsured accounts. But they have since revised that number dramatically, and now put uninsured deposits at $66.4 million spread over 2,880 accounts.

FDIC officials cautioned that just because the money is uninsured does not mean depositors will lose all of it. The FDIC uses money from the sale of a failed bank's assets to reimburse some portion of the uninsured deposits. Even when the failure generates huge losses - such as $1.1 billion-asset First National Bank of Keystone in West Virginia, which cost the Bank Insurance Fund $770 million - uninsured depositors usually get some money back. The FDIC paid 9.6% of uninsured portions back to depositors at Keystone. The agency currently has no estimate of how much Superior's uninsured depositors are likely to receive.

Industry advocates pushing for more insurance coverage said Superior's downfall could help them counter Fed and Treasury officials, who testified last month that depositors over the coverage limit are generally relatively wealthy, and that they should exercise "depositor discipline" - in other words, large account holders fearful of losing their uninsured money should scrutinize their financial institutions.

"Depositor discipline does not work," said Kenneth A. Guenther, the president and chief executive officer of the Independent Community Bankers of America. "The Office of Thrift Supervision got caught with its pants down on this bank failure. If they can be caught by this, what can the ordinary depositor know and do?"

Of all the tales coming out of the bank, those of retirees losing their money may do the most to galvanize deposit insurance reform.

Reform proponents have argued that retirement funds such as 401(k) accounts and IRAs should have higher coverage levels. That idea has some precedent; in 1978 Congress gave IRAs more than twice the coverage of other accounts, which were then insured up to $40,000. In 1980, limits on all accounts were raised to $100,000.

Sen. Johnson said people should have a safe place to put their retirement funds. "Judging from initial reports in this case, these uninsured depositors are by and large not wealthy individuals," he said. "We used to think of someone with $100,000 as a person of means. In the last 20 years, though, inflation has changed that somewhat."

Diane Casey, the president of America's Community Bankers, argued similarly.

"It is not going to serve anybody any good to put our retirees at risk," she said. "We would like to see that money protected. Not because we think banks will fail, but it is not something we feel the retiree population should be considering."

But though Ms. Casey said that Superior's failure might help the case for higher retirement levels, she also warned against drawing too many conclusions from the thrift's downfall. "Superior is not reflective of the rest of the industry," she said. "Public policy should not be based on one very troubled institution. That would not serve us well."

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