WASHINGTON — Ending unlimited federal coverage of transaction accounts did not spur the sharp deposit shifts between banks that some had predicted it would, the Federal Deposit Insurance Corp.'s No. 2 said Wednesday.

FDIC Vice Chairman Thomas Hoenig said in a speech that bankers effectively communicated with customers leading up to the end of the Transaction Account Guarantee program, mitigating fears about the safety of their funds.

"I don't think the effect of removing TAG … has been anywhere near as dramatic as people thought it would be," he said in remarks to a Washington conference of the National Association of State Treasurers.

The deposit-coverage program, originally created by the FDIC in 2008 to respond to liquidity concerns during the crisis, was extended until the end of last year by the 2010 Dodd-Frank Act. The vast majority of community banks pushed for an additional extension, arguing that eliminating the program would prompt customers with deposits above the FDIC's standard $250,000 limit to move their money to large institutions with a perceived federal guarantee. Yet despite attempts to renew TAG again through legislation, the program ended as planned on Dec. 31.

"Some of the large banks have seen an inflow" of deposits "and some have seen an outflow," Hoenig said of the effects of ending the program. He added that bankers "talked to their customers" about why their institutions were still a safe place to keep funds. "They became better bankers as a result. That's the goal," he said.

Hoenig also discussed his proposal for breaking up the largest financial institutions to separate their traditional banking operations from riskier broker-dealer activities that, he said, should not benefit from the federal safety net. Hoenig, formerly the head of the Federal Reserve Bank of Kansas City, was one of the first public officials to voice support for some type of big-bank breakup, an issue that has since gained traction with others.

"To change outcomes, to keep the entrepreneurial spirit in place, we must change … incentives," he said Wednesday.

Hoenig said the status quo will only contribute to more consolidation. He said policymakers should also avoid the alternative of imposing too much government involvement in the industry, which would hamper competition. Instead, the big banks should have to embrace a simpler structure.

"The risk of bailout is fairly high if we don't change the structure," he said.

Without such changes, Hoenig said the FDIC will be limited in its ability to carry out new Dodd-Frank powers to resolve failing behemoths in a manner meant to limit broader shocks on the industry.

"The chances of a more reasonable resolution go up if you simplify the system," he said.

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