WASHINGTON - Federal Deposit Insurance Corp. Chairman Donna Tanoue announced her resignation Tuesday and set the stage for Texas community banker Donald E. Powell to assume control of the agency after the Senate confirms him.

In Ms. Tanoue's resignation letter to President Bush, she said that "the time has come to move on to new challenges." In an interview Tuesday, the former banking lawyer said that she wants to leave because she expects Mr. Powell to be confirmed shortly. She said her resignation would take effect July 11.

By far the most important accomplishment cited by colleagues and the industry is her effort to overhaul the deposit insurance system. In one of the more ambitious agency projects in recent years, Ms. Tanoue announced in March 2000 that the FDIC planned to recommend changes in the system.

Slightly more than a year later - after soliciting comments on an options paper and holding several roundtable discussions - the agency recommended reforms to Congress. They included charging banks more refined risk-based premiums, capping the reserve funds, offering institutions rebates based on past contributions, and indexing the coverage level to inflation.

Though the figurehead for reform may be leaving, industry representatives said they expect the effort to continue.

"I think issues have been teed up and deposit insurance reform should go ahead," said Diane Casey, president of America's Community Bankers. "Numerous bills on deposit insurance have been introduced, and the issues have been engaged. Donna Tanoue was right - the time to fix this is when the sun is shining. We would rather do it now than do it during a crisis."

While Mr. Powell has not indicated his views on the reform effort, industry analysts agreed that the overall problems with the system will have to be addressed, including the fast-growing institutions that have added billions of dollars to insured deposits and diluted the industry's reserves without paying any premiums.

Mr. Powell will have to "figure out how to deal with the vacuum cleaner banks - the large nonbank institutions that have been sucking in insured deposits," said Karen Shaw Petrou, managing partner of Federal Financial Analytics here.

"He will need to deal with the potential for a couple of failures, since there are a number of troubled institutions out there, not all of them tiny," she said. "And the Bank Insurance Fund is at the level at which a reasonably minor failure could create the need to impose new premiums, which could turn out to be a real political firestorm."

For her part, Ms. Tanoue said that after reform, her successor's biggest challenge will be watching for the effects of the slowing economy. "The primary issue is watching the credit portfolios of institutions as the economy continues to change."

But Ms. Tanoue will leave the agency with a number of fans, most notably community bankers. When she first broached the idea of doubling the coverage level per account to $200,000 more than a year ago, small bankers were nothing short of ecstatic.

But lawmakers and fellow regulators were not thrilled - the very idea brought down a hailstorm of criticism from several powerful figures, including Federal Reserve Board Chairman Alan Greenspan, Sen. Phil Gramm, and then-Treasury Secretary Lawrence H. Summers.

Ultimately, the FDIC did not recommend doubling the limit, but did endorse tying the coverage level to inflation. But community bankers said that her decision to include any recommendation on coverage levels was significant - and took guts.

"She has been one of the FDIC's best and most courageous chairmen," said Kenneth A. Guenther, president and chief executive officer of the Independent Community Bankers of America. "There was no stronger or more knowledgeable friend of community banking."

Ms. Tanoue said that she did not back down on deposit insurance reform as a result of political pressure.

"It is an important public policy issue," she said. "I thought it important that we take a harder look at the issue and examine it carefully. I thought the FDIC had a responsibility to do that analysis. But that was true for all the issues. When we first started, many people questioned the timing and nature of the whole effort, but there were clearly issues. … We thought deserved very considered analysis."

Many applauded Ms. Tanoue's inclusion of the industry in developing the recommendations. Some have suggested the agency could have worked in secret in developing the reform ideas, but instead chose to offer several clues and let the industry weigh in before specific changes were recommended.

"From day one of her tenure as chairman of the FDIC, Donna Tanoue set the tone of cooperation and maintained an open dialogue with the banking industry," said Donald G. Ogilvie, the executive vice president of the American Bankers Association, in a press statement.

But Ms. Tanoue has tackled more issues than just reform. During her tenure, which began in May 1998, she has recommended instituting a different capital standard for small banks, offered guidelines for institutions to avoid purchasing predatory loans in the secondary mortgage market, and served as a key regulatory spokesperson when the industry faced the Year 2000 bug.

She made numerous public appearances - including on the Oprah Winfrey show and on CNN, when she removed money from an automated teller machine after midnight on Jan. 1, 2000 - to try and calm fears of a massive financial disaster as a result of the date change.

Ms. Tanoue has also continued to warn the industry about declining credit quality, and she discussed "yellow caution lights" even as commercial banks made record profits.

She has also instituted efforts to reduce the agency's workforce and budget, as well as create a diversity program within the FDIC. During her tenure the agency's staffing has declined 16.6%, to 6,500, while its budget is 6% smaller this year than it was last year.

She said she did not know what her next job would be, or whether would return to Hawaii. She said that she planned to take a vacation after her resignation becomes effective next month, and she would spend time with her husband and seven-year-old daughter.

Ms. Tanoue is still expected to testify before the Senate Banking Committee next week when it holds its industry oversight hearing, though she said that she hoped Mr. Powell would be confirmed quickly. If he is not sworn in by July 11, FDIC Director John Reich would automatically become acting chairman.

In an e-mail to FDIC employees, Ms. Tanoue concluded by saying: "There is no better place to serve America than the FDIC. I shall always be grateful for the opportunity to have been your chairman. I wish all of you all the best."

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