Fed's Duke: No sign deposits shifting from small to bigger banks

WASHINGTON Tue Feb 5, 2013 8:29am EST

WASHINGTON Feb 5 (Reuters) - U.S. community banks have not suffered a loss in deposits to larger lenders, as some had feared when unlimited deposit insurance expired at the end of last year, a senior Federal Reserve official said on Tuesday.

"We are watching deposit movement carefully, but so far have seen little evidence of deposits moving out of the banking system or as some had feared, moving from smaller banks to larger banks perceived as 'too big to fail,'" Fed Governor Elizabeth Duke said in remarks prepared for delivery to a conference of community bankers in Duluth, Georgia.

Unlimited U.S. deposit insurance that was introduced during the 2008-2009 financial crisis was allowed to expire at the end of 2012. The insurance is now capped at $250,000 per depositor.

Duke in her prepared remarks did not mention U.S. monetary policy.

Herself a former community banker, Duke sympathized with those concerned by new financial regulation facing the industry and who painted a picture "so bleak that they see only personal retirement or the sale of the bank as viable strategies."

But she said that community banks had been spared from many of the new regulations, and she urged those who object to some of the planned rules to push back by suggesting other ways of controlling risk in their institutions. The same went for the proposed Basel bank capital rules agreed to by world leaders.

"We will do everything possible to address the concerns that have been expressed by community bankers and still achieve the goal of having strong levels of high-quality capital - built up over a reasonable and realistic transitional period - in banks of all sizes, including community banks," she said.

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