Newspaper article The Christian Science Monitor

S&L Reformers Target Deposit Insurance Methods

Newspaper article The Christian Science Monitor

S&L Reformers Target Deposit Insurance Methods

Article excerpt

THIS fall, the battle for political high ground over the savings and loan debacle will be fought over how bank and thrift deposits are insured.

The upshot is almost certainly going to be a return of some financial risk to depositors from taxpayers.

When the White House wanted to send a warning shot early this summer to Democrats who were attacking President Bush on the S&L front, spokesman Marlin Fitzwater traced the roots of the disaster to the raising of the insurance to $100,000 per account in 1980.

Fernand St Germain (D) of Rhode Island, then House Banking Committee chairman, slipped through the increase from $40,000 "in the dead of night," Mr. Fitzwater charged.

Democrats, such as Mr. St Germain's successor, Henry Gonzalez (D) of Texas, share the view of how the $100,000 limit came about.

The Treasury Department is working on a plan for reforming the deposit-insurance system. The study is scheduled for completion in January, but it could be ready as early as next month - before the Nov. 6 general elections.

Democrats are pressing the pace. Mr. Gonzalez called for changes in federal insurance in a plan he released last week. It calls for reducing the $100,000 limit, but he has not suggested by how much.

Treasury Secretary Nicholas Brady, concerned about the stability of the deposit insurance system, has said in congressional hearings the $100,000 limit will not be reduced in the Treasury plan.

A stronger concern among policymakers in the administration and on Capitol Hill is to pull brokered deposits - large sums accumulated by financial brokerages from many investors - from under the umbrella of federal insurance.

Currently, brokered funds are insured as if they were deposited by each of the many clients of the brokerage houses. Many policymakers object that these clients are investors who should bear risk, not depositors looking for a safe place for their money.

One reform proposal Gonzalez supports is to limit the number of accounts a depositor can expect federal insurance on. …

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