BANKING / FINANCE : Bankers Say Plans to Overhaul Industry Favor Big Institutions

Big banks may like most of the Bush Administration’s plan to overhaul the banking industry, but independent bankers in Orange County are more skeptical.

“I don’t think it’s one that’s going to breeze through Congress,” said Clyde H. Gossert, chairman and chief executive of CommerceBank in Newport Beach.

Duane Rickard, president of Security Pacific State Bank, said he expects that state banking officials throughout the nation will fight the bill because it limits the officials’ authority. It would limit the banks’ expanded powers provided under many state charters.

But what bothers Gossert, Rickard and many community bankers nationwide even more is that the plan appears to penalize small banks by limiting deposit insurance while it continues to support large banks by acknowledging that they are too big to be allowed to fail.

One provision would limit insured accounts by one person to $200,000 per institution, with $100,000 earmarked for retirement. Currently, a family could set up enough different accounts at a single bank to insure $1.2 million.

Another provision discourages regulators from fully reimbursing uninsured deposits under the theory that some banks are simply too big to fail.

“Is the government still saying that the safest place to put your money is a big bank?” Gossert asked rhetorically. “The people working on this proposal for the Treasury Department all came out of Wall Street. As a consequence, the view in Washington is still that of a big bank.”

Worse, Rickard said, the effect of the two provisions will likely cause customers with large deposits in smaller banks to move them to the larger institutions. Though the money may exceed insured limits, he said, customers would know that the government wouldn’t let the banks fail.