Local bankers praise FDIC increase

Local bankers welcomed the decision to increase the maximum amount of Federal Deposit Insurance Corp. coverage because it protects depositors from losses in the event of bank failure.

It also will make it easier for small, independent banks to increase total deposits from fewer customers, thus giving the independent banks more cash to make loans.

The FDIC increase was part of the bailout legislation.

"The increase in the FDIC insurance limit is a huge boost to customer confidence," said William Martin, chief executive and vice chairman of Service1st Bank.

"The increase provides 100 percent protection for depositors to $250,000 which will allow funds to flow back thus placing increasing liquidity on banks' books and stimulate lending locally. That's the intent of the increase, and it will work," Martin said.

Another banker agreed.

"I think the increase is long overdue," said Dale Gibbons, chief financial officer of Bank of Nevada parent Western Alliance Bancorporation.

"It's been 28 years since the maximum was raised to $100,000, and the value of the dollar has dropped dramatically since then," Gibbons said. "A lot of people will be able to sleep better at night because of that."

Paul Kadavy, chief executive of Paramount Bank, said the increase benefits both depositors and banks.

"It's really an inconvenient thing for people to worry about splitting up their deposits (among banks to get full FDIC insurance coverage)," Kadavy said. "It's obviously more convenient to have one bank account."

In addition, "it assists us in keeping deposits we might otherwise lose," Kadavy said.

On the other hand, Martin Lobel, former legislative aide to Sen. William Proxmire, said the higher deposit insurance will increase the losses paid by the FDIC when banks fail. Banks, having financial problems, often pay higher than market rates for deposits and now these banks will be able to get larger sums from individuals.

Tim Coffey, vice president off research at FIG Partners, a securities firm specializing in bank stocks, said Congress should have backed up to $1 million per depositor in order to match the government backing for nonbank money funds.

"The banks should have gotten the same treatment," Coffey said.

Review-Journal writer John G. Edwards contributed to this report.