Ruled Out as a Alternative to Deposit Insurance

WASHINGTON - The Federal Deposit Insurance Corp. has concluded it would be too expensive to track individual bank deposits.

The FDIC reached the conclusion in a report to Congress on an alternative approach to deposit insurance, in which coverage could be limited per individual.

In a second report, the agency dismissed for now the possibility of private-sector reinsurance for deposits.

Congress Called for Studies

Congress mandated the studies in the FDIC Improvement Act of 1991, hoping to inspire innovations in the insurance system. Instead, the reports focused on reasons not to change the system.

"I don't really think they understood what they were doing," said Karen Shaw, president of the Institute for Strategy Development, a Washington consulting firm. "Congress didn't to know how to track 390 million accounts every second. They wanted to explore all ways of reducing the cost to the fund when a bank fails."

The FDIC staff wrote, "The development and implementation of a deposit tracking system would be unwarranted, unjustified, and ill-advised."

Initial Cost Put at $1.3 Billion

The study estimates it would cost the banking industry $1.3 billion to get the system up and running and another $ 1 00 million a year to operate it. The FDIC's costs would be $30.5 million initially and $20 million a year after that, the agency said.

The staff's also said depositor privacy could be violated by the system. That. in turn, could prompt depositors to take their money out of banks, which "could impair the performance of the economy."

The staff's views apparently are shared by bankers. Of the 989 comment letters received by the FDIC. 988 opposed tracking deposits. (For excerpts, see page 8.)

The FDIC board approved the report with little discussion.

Pilot to Go Forward

In the 52-page report on potential private-sector reinsurance, the FDIC concluded it would be difficult to implement. Still, the FDIC agreed to continue development of a pilot reinsurance program which has been in the works since July 1992.

Also on Thursday, the FDIC approved a final risk-based premium system, taking effect in January. It varies little from the interim system in place since January.

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