2.  The FDIC can reduce regualtory burden by merging the Bank Insurance Fund and the Savings Association Insurance Fund.

3.  The FDIC should increase deposit insurance coverage to $200,000.

4.  The FDIC should ask Congress to pass a law to totally insure the municipal/government deposits in community banks since those deposits have to be collateralized anyway.

5.  Investment banks are offering private insurance and other methods that are confusing depositors.

I agree. The rules are complicated. They’ve gotten that way because people have gotten more sophisticated in the way they structure their accounts. Beginning in the early 1990’s, a growing number of individuals and families have established revocable "living" trusts to manage their personal assets. These are complex legal instruments designed to meet specific estate and tax planning goals. The FDIC’s existing rules for insurance coverage of revocable trust accounts were written before "living" trusts became popular, and the rules are difficult to apply to these new trusts. Because an analysis of the formal trust document is required to determine insurance coverage, an attorney’s assistance often is required.

I am aware of the complexities involved due to these accounts, and remain concerned about the difficulties encountered by depositors and insured financial institutions alike. I’ve asked our staff to look at ways to amend the insurance rules to simplify the determination of insurance coverage for revocable "living" trust accounts. If we decide to propose a regulatory change, we will issue a notice of proposed rulemaking and the public will have an opportunity to comment.

In the meantime, we’ve taken some steps to help bankers and depositors understand and correctly apply the deposit insurance rules to specific deposit account groups. For example:

• Bankers and depositors can call the FDIC toll-free at 1-877-ASK-FDIC to talk to a deposit insurance specialist who can advise callers about the specific amount of deposit insurance coverage that is available for deposit accounts.

• Bankers and depositors can receive written responses from the FDIC to their deposit insurance questions by submitting either an electronic inquiry using the FDIC’s on-line Customer Assistance Form located at http://www2.fdic.gov/starsmail/index.html or mailing their question to the Federal Deposit Insurance Corporation, 550 17th Street, N.W., Washington, DC 20429-9990.

• The FDIC maintains an Electronic Deposit Insurance Estimator (EDIE) on its web site that bankers and depositors can use to calculate the amount of insurance coverage on the most common deposit accounts. EDIE is an interactive Internet application that allows users to enter specific account information and receive a written report summarizing insurance coverage for an individual depositor’s group of accounts. EDIE is located at http://www2.fdic.gov/edie.

• In response to banker requests, the FDIC also is developing a special banker version of EDIE that bankers can operate without requiring access to the Internet.

• The FDIC has developed a large inventory of written materials that provide detailed explanations of the deposit insurance rules, including a brochure for depositors, Your Insured Deposits, The Financial Institution Employee’s Guide to Deposit Insurance, and various articles on deposit insurance in the FDIC Consumer News. All of these publications are available on the FDIC’s web site at www.fdic.gov .

• The FDIC works with state and national trade groups to provide seminars for banker groups on the deposit insurance rules. These half-day session provide attendees with an in-depth review of the rules for deposit insurance coverage, examples of how the deposit insurance rules are applied, and tips on common errors made by depositors. Attendees also receive extensive written materials that they can use on the job and share with co-workers. For more information about these seminars, call the FDIC Call Center at 1-877-ASK-FDIC and ask to speak to a deposit insurance specialist.

I will make sure we continue to explore new methods to communicate with bankers and depositors to help them understand the deposit insurance rules. We’ll publicize new initiatives through our web site, press releases and Financial Institution Letters. I appreciate your comment.

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I could not agree more. This is a central objective of deposit insurance reform. Drafts of deposit insurance reform legislation going through the House and Senate right now include a provision to merge the funds. I hope the Congress will pass legislation accomplishing this by year-end.

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I struggle sometimes with the issue of coverage. I understand the views of community bankers that the coverage level should be raised. And I also understand the opinions of others, like the Federal Reserve Board of Governors and the United States Treasury, who have spoken out against increasing or indexing deposit insurance coverage. Ultimately, we decided to support leaving coverage at its current level while – importantly – indexing it for inflation. This may not accomplish your goal of raising coverage, but it will certainly ensure that the value of deposit insurance will not wither away over time.

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With respect to municipal deposits, the current drafts of the House bill puts coverage at the lesser of $5 million, or 80% of the amount over the standard coverage level. Call Report data suggests that smaller institutions are pledging an increasing percentage of their securities in order to hold public deposits. This trend may imply that smaller institutions are becoming increasingly constrained in their investment options. Raising the coverage level on public deposits could provide banks with more latitude to invest in other assets, including loans. Higher coverage levels might also help community banks compete for public deposits and reduce administrative costs associated with securing these deposits. On the other hand, the collateralization requirement places a limit on the ability of riskier institutions to attract public funds, while a high deposit insurance limit would not. Traditionally, we have taken a dim view of treating one class of deposits – in this case, municipals – dramatically differently than the others and we have communicated that concern to Capitol Hill.

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Financial institutions not insured by the FDIC can not advertise themselves as being FDIC insured. Preventing the use of private deposit insurance is not part of the FDIC’s mission, but historically, private deposit insurance has been difficult to implement for a variety of reasons. We at the FDIC pay a great deal of attention to making sure depositors know what the FDIC logo means and depends upon banks to educate consumers as to the value of the FDIC insurance that they provide to their depositors. We will continue to do so.

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