- The Washington Times - Wednesday, April 24, 2002

Federal Reserve Chairman Alan Greenspan told Congress yesterday that the Fed opposes increasing the $100,000 limit on deposit insurance coverage but supports requiring more banks to pay premiums for the insurance.
Mr. Greenspan, testifying before the Senate Banking, Housing and Urban Affairs Committee, said the Fed, which regulates bank holding companies, agrees with the Federal Deposit Insurance Corp. that some aspects of the deposit insurance system should be reformed.
However, he said he and other Fed board members remain opposed to a proposal to increase the $100,000 limit on the amount of deposits covered against loss in the event of a bank failure.
"Raising the ceiling now would extend the safety net, increase the government subsidy to banking, expand moral hazard and reduce the incentive for market discipline, without providing any real evident public benefits," he said.
He said the Fed believes that as the country's financial system has become more complex, the risk of increasing "structural distortions" by expanding government guarantees has risen.
But Mr. Greenspan endorsed another FDIC proposal, to greatly expand the number of banks and other financial institutions paying premiums for the deposit insurance.
The FDIC is proposing that all banks be required to pay for deposit insurance according to their risk of failure, that the $100,000 limit on account coverage increase with inflation and that the bank insurance fund be merged with the fund for savings and loans.

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