New Bank Deposit Insurance Rules Urged

The Bush Administration wants to raise deposit insurance fees for reckless banks and limit how many insured accounts a depositor may have, a senior Treasury Department official said Wednesday.

Treasury Undersecretary Robert R. Glauber also suggested that the Administration may seek to force banks to conduct commercial real estate lending through separate affiliates that would not use insured deposits.

Glauber’s comments came in a progress report to the Senate Banking Committee on an uncompleted study by his department that is intended to serve as the starting point for a major overhaul of the financial system next year.

He said the Administration favors charging banks making risky loans or operating with low capital more for insurance than conservatively run banks. Glauber said the Treasury is “closely examining” proposals that would combine government deposit insurance with private insurance to provide guidance for setting premium levels.

The Administration also favors limiting the number of insured accounts per depositor. Depositors can now insure far more than the $100,000 per account limit by dividing their money among several institutions or among single, joint and trust accounts at a single institution.

Among the other “particularly attractive” options, Glauber said, are:

* Requiring the owners of banking companies that wish to expand into areas traditionally barred to banks, such as securities underwriting and insurance, to increase their capital investment in their companies.

* Giving federal regulators the power to curb risky bank activities permitted under some state laws.

* Limiting “pass-through” insurance for pension funds and other large institutional investors. Under current rules, a deposit by a pension fund with 100 members would have protection equaling 100 times the $100,000 insurance limit.

* Using improved accounting techniques to give regulators a more up-to-date picture of a bank’s health.

* Forcing regulators to crack down on weak institutions before they fail.

* Requiring annual, on-site examinations of large banks and ailing banks.

Glauber steered clear of the most delicate deposit insurance issue--how to discourage regulators from protecting all deposits in large banks, even those over the insurance limit.