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Deposit insurance extended; Georgia bankers like move

POSTED: October 18, 2008 5:00 a.m.

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An official of a Gainesville bank and a spokesman for a state banking association said it remains to be seen if the federal government’s direct infusion of cash will have any benefit for Georgia-based banks.

Meanwhile, other initiatives were unveiled Tuesday to stem the credit crisis: The Federal Deposit Insurance Corp. launched an insurance fund to temporarily guarantee new issues of bank debt — fully protecting the money even if the institution fails.

Additionally, the FDIC will start providing unlimited deposit insurance for noninterest bearing accounts, which are mainly used by businesses to cover payrolls and other expenses. Frequently these accounts exceed the current $250,000 insurance limit, so the expanded insurance should discourage nervous companies from pulling their money out of banks. Both of these efforts would be financed by fees charged to participating financial institutions — not money from the bailout package.

"That’s good for Georgia banks, because it removes the worry for their customers about having large deposits that exceed the $250,000 limit," said David Oliver, senior vice president of the Georgia Bankers Association. "Those accounts are now fully insured with no dollar limit. That helps banks hold on to their customers and keeps deposits there."

William Blanton, chairman of First Century Bank in Gainesville, said he likes the new coverage, but would prefer it to be capped at $1 million.

"If there is any value to be derived at the community bank level, it would be up to $1 million," Blanton said. "If they’re operating above that, they’re probably already at a bigger bank."

The difference between the rate at which banks lend to other banks and the rate at which they buy U.S. government debt has narrowed, but remains near a 25-year high — a glaring sign that there’s still fear in the market. But there was a hopeful glimmer elsewhere: A crucial short-term, bank-to-bank lending rate called the London Interbank Offered Rate inched down Tuesday. That rate is important because a lot of commercial loans and many adjustable-rate mortgages are tied to it.

Blanton said only the largest banks participate in the rate, and most smaller banks deal in what is called fed funds.

Joe Brannen, president and chief executive of the Georgia Bankers Association, said the government backing of short-term loans between financial services companies is a confidence-building step.

"This should encourage more and better-priced activity in the credit markets as well as confidence in these institutions by credit rating agencies," Brannen said.

Blanton said there are many details to be determined about the $700 billion government bailout.

"They only came up with this idea a week ago," Blanton said. "It was fully deployed today, and there are no details."

While the Treasury announced plans to invest $125 billion in nine large U.S. banks, Brannen said the association is still examining the possible impact of direct federal investment on Georgia banks.

"There may be some Georgia banks interested in participation, but we expect that to be a small number because a majority of Georgia-chartered banks are well capitalized," Brannen said.



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