WASHINGTON -- The Bush administration said yesterday that restrictions should be placed on insurance coverage of deposits at banks and suggested that the insurance premiums paid by the banks be pegged to the risk involved in their investments and loans.
In presenting the administration's latest views before the Senate Banking Committee yesterday, Treasury Undersecretary Robert R. Glauber said that the current level of deposit protection, $100,000 per account, should not be lowered.
But he added that the government should close loopholes that permitted virtually unlimited coverage through multiple accounts held by individuals, pension funds and institutions.
Mr. Glauber thus joined a growing debate in Washington among lawmakers and regulators about the steps that must be taken to avoid the collapse of the weakening bank insurance fund.
Emphasizing yesterday that the difficulties encountered by the banking industry were smaller than those plaguing the savings and loan community, Mr. Glauber said that "adverse trends in both the banking industry and the bank insurance fund are clear causes for concern."
Nearly a dozen proposals to ease the financial stress on banks have been introduced in Congress, ranging from drastically cutting insurance coverage to raising the premiums paid by banks to as high as $1 for every $100 in deposits, or nearly sevenfold, to overhauling the whole banking system.
The Federal Deposit Insurance Corp. has proposed increasing the premiums by 30 percent, to 19.5 cents per $100 in deposits, beginning next year.
The ratio of insurance to deposits is now about 70 cents for every $100, its lowest level since the fund was created during the Depression. Regulators have warned that an economic downturn or the collapse of one or several large banks could exhaust the $13.2 billion fund.
The worsening condition of the fund comes as many large banks are struggling with growing real estate portfolios in weakening markets, continued problem loans to less-developed nations and borrowings by corporations with their own financial difficulties. As a result, many larger banks are finding it increasingly difficult to raise capital.