Depositors given unlimited insurance on non-interest bearing accounts

Federal banking officials Tuesday gave Southern Nevada bankers and their colleagues around the country a pill that will make it easier for them and some of their best depositors to sleep better at night.

The Federal Deposit Insurance Corp. gave depositors unlimited insurance with non-interest bearing accounts, a protection that particularly benefits small and mid-size businesses that have deposits exceeding the new federal maximum of $250,000 in deposit insurance.

"Depositors won't be afraid that their institution will fail, and they'll lose deposits," said Timothy Coffey, vice president of research at FIG Partners, a regional brokerage firm that specializes in bank stocks.

Businesses have been moving uninsured deposits out of community banks to giant banks, which are believed to be too big for the government to allow to fail, he said.

Small independent banks can now offer business clients FDIC insurance for all deposits.

A typical business could keep the $250,000 in interest-bearing accounts and put the remainder in non-interest-bearing accounts.

That lowers the costs dramatically for banks while giving business customers better safeguards, Coffey said.

In addition, the additional FDIC insurance should help stop runs on bank deposits, which have led to the collapse of struggling institutions.

"It was the run on deposits that killed IndyMac, and it was the run on deposits that killed Silver State," Coffey said.

Bank regulators shut down IndyMac of Pasadena, Calif., in July and Silver State Bank of Henderson in September.

The Treasury Department announced Tuesday that it will buy preferred shares in nine major banks and that it will consider purchasing preferred shares in other banks as well.

It has become increasing difficult for banks to raise capital from investors, and the Treasury program will enable those who cannot raise capital from conventional sources to get help from the government, Coffey said.

By making the preferred stock investments in nine big banks, the government removed some of the stigma of selling preferred shares to Treasury, financial analysts say.

Ed Nigro, chairman of Bank of George, said the federal programs may ease fears in credit and capital markets, thus leading to a decrease in a key interest rate used for residential and commercial mortgages.

Many adjustable rate mortgages reset periodically to the London Interbank Offered Rate or LIBOR, Nigro said.

"If (the federal programs) can calm capital and credit markets, it will help us," Nigro said.

"We look for this kind of capital infusion to stabilize the macro credit markets," he said.

The benefits may go mostly to big banks, but he said they "will trickle down to us."

"If the program helps with liquidity, if it helps clients and shareholders get back a stronger comfort level, then it's a good thing," said Kathy Phillips, chief executive of Nevada Commerce Bank and chairwoman of the Nevada Bankers Association.

"It will help the economy at large which will help all banks," said Arvind Menon, chief executive of Meadows Bank.

"Certainly, everything (the government has) done is going to make the make the banking environment more stable than it's been in the last few weeks," Menon said.

Menon said he would like for the FDIC to insure all deposits, as banking regulators have done in some European countries.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.