deposit insurance premiums in times when the insurance fund is above its mandated threshold of 1. 25 percent of total insured deposits. yet several fast - growing, free - riding institutions could trigger premium increases for the entire industry by altering the ratio of the fund's level to total industry deposits. adding to the need to address fundamental change to the fdic statute is the arbitrary nature of the 1. 25 percent designated reserve ratio, the maintenance of which can trigger wide premium swings. the ratio was the product of political expediency when written into the law a decade ago and has now assumed relevance far exceeding its value. all in all, the current deposit insurance system has a number of aspects that one would never observe in the private sector and that need to be reformed. indeed, most parties to the deposit insurance issue agree on the need to provide the fdic with greater flexibility in setting premiums, to eliminate the freerider provision, and to encourage increased risk - based assessment of premiums. the federal reserve board of governors of the federal reserve system endorsed these proposed changes. my final observations on deposit insurance reform concern the most controversial part of the current debate in the united states : whether to raise the deposit insurance limit. as many of you know, my fellow board members and i oppose an increase in, or an indexing of, the current $ 100, 000 deposit insurance ceiling. in our judgment, increased coverage would be unlikely to add in any measurable way to the stability of the banking system. macroeconomic policy and other elements of the federal safety net for depository institutions, including the still - significant level of deposit insurance, continue to be effective deterrents against bank runs. moreover, that household depositors would benefit from an increase in coverage is not apparent. according to our periodic surveys of consumer finances, most u. s. household depositors have balances well below the current insurance limit, and those who have larger balances appear to have been adept at achieving the level of deposit insurance coverage they desire by opening multiple accounts. such spreading of asset holdings is perfectly consistent with the counsel always given to investors to diversify their assets - be they stocks, bonds, mutual funds, or certificates of deposit across different issuers. some small banks argue that they need increased deposit insurance coverage to compete effectively with their larger and more diversified cousins. an analysis of small bank performance does not support that claim. for example, since the mid - 1990s, smaller banks'assets and unins

research has allayed some of these fears, at least in the united states. importantly, more recent research has recognized that what is relevant is what effect of changes in market structure have on the total availability of credit to small borrowers and whether such changes are associated with more accurate pricing of risk. in the united states, studies that have examined the effect of mergers and acquisitions on small business lending by other banks in the same local markets have found that other banks and new bank entrants tend to offset any reduction in the supply of credit to small businesses by the consolidating banks. in addition, a recent study by board staff and others suggests that earlier conclusions regarding the behavior of larger banks may need some qualification. this study finds that the creation of large banks may not significantly reduce lending to small businesses. evidence is beginning to emerge that technological change, such as the use of credit - scoring models for small business loans, may serve to expand the supply of credit to small businesses. in any event, the remaining uncertainties suggest to me that this topic will be a fertile one for all of us in the coming years. conclusion i would like to close my remarks by returning to where i began. it is a great pleasure for me to participate in this conference, and once again i thank our hosts for their invitation to me and for their generous hospitality. the topics we are discussing are important, and i hope that i have contributed to our understanding of some of the relevant issues. thank you. berger, rosen, and udell ( 2001 ). see allen n. berger, w. scott frame, and nathan h. miller, " credit scoring and the availability, price, and risk of small business credit, " feds working paper 2002 - 26, board of governors of the federal reserve system, 2002.