least some loss, with spreads on their subordinated debt larger than those on similar debt of large and highly rated nonbank financial institutions. indeed, there are no aaa - rated u. s. banking organizations. another argument often raised by smaller banks regarding the need for increased deposit insurance coverage is their inability to match the competition from those large securities firms and bank holding companies with multiple bank affiliates, offering multiple insured accounts through one organization. while the board believes that such offerings are a misuse of deposit insurance, raising the coverage limit for each account would also increase the aggregate amount of insurance coverage that large multibank organizations would be able to offer, so the disparity would remain. conclusion the board commends the fdic for its review, analysis, and recommendations for reform of the deposit insurance system. there are several aspects of that system that need reform. the board supports, with some modifications, all of the fdic ’ s recommendations except indexing of the current $ 100, 000 ceiling. the thrust of our proposed modifications would call for a wider permissible range for the size of the fund relative to insured liabilities, reduced variation of the insurance premium as the relative size of the fund changes with banking and economic conditions, and a premium net of rebates. there may come a time when the board finds that households and businesses with modest resources are finding difficulty in placing their funds in safe vehicles and / or that there is reason to be concerned that the level of deposit coverage could endanger financial stability. should either of those events occur, the board would call our concerns to the attention of the congress and support adjustments to the ceiling by indexing or other methods. but today, in our judgment, neither financial stability, nor depositors, nor depositories are being disadvantaged by the current ceiling. raising the ceiling now would extend the safety net, increase the government subsidy to banking, expand moral hazard, and reduce the incentive for market discipline, without providing any real public benefits. with no clear public benefit to increasing deposit insurance, the board sees no reason to increase the scope of the safety net. indeed, the board believes the time has come to draw the line on expanding government guarantees.

. in fact, bankers ’ comments and the data indicate that the weakness in stock prices in recent quarters has been marked by increased flows into bank and thrift deposits. depository institutions does the problem to be solved by increased deposit insurance coverage concern the individual depository institution? if so, the problem would necessarily be concentrated at smaller banks that generally do not have access to the money market or foreign branch networks for supplementary funds. since the mid - 1990s, banks ’ u. s. assets have grown at an average annual rate of 7. 7 percent. adjusted for the effects of mergers, the smaller banks, those below the largest 1, 000, have actually grown at a more rapid average annual rate of 13 percent. uninsured deposits at these smaller banks have also grown more rapidly than at larger banks – at average annual rates of 20. 5 percent at the small banks versus 10. 9 percent at the large banks, both on the same merger - adjusted basis. clearly, small banks have a demonstrated skill and ability to compete for uninsured deposits. to be sure, uninsured deposits are more expensive than insured deposits, and bank costs would decline if their currently uninsured liabilities received a government guarantee. but that is a different matter, and raises the issue of a subsidy in its starkest terms. i might add that throughout the 1990s, small banks ’ return on equity was well maintained. indeed, the attractiveness of banking is evidenced by the fact that 1, 363 banks were chartered during the past decade, two - thirds since 1995, when bank credit demands began to intensify. some small banks argue that they need enhanced deposit insurance coverage to equalize their competition with large banks because depositors prefer to put their uninsured funds in an institution considered too big to fail. as i have noted, however, small banks have more than held their own in the market for uninsured deposits. in addition, the board rejects the notion that any bank is too big to fail. in fdicia, congress made it clear that the systemic - risk exception to the fdic ’ s least - cost resolution of a failing bank should be invoked only under the most unusual circumstances. moreover, the resolution rules under the systemic - risk exception do not require that uninsured depositors and other creditors, much less stockholders, be made whole. consistent with this view, the market clearly believes that large institutions are not too big for uninsured creditors to take at