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FDIC's Bair Prefers Higher Deposit Reserve Ratio

The Federal Deposit Insurance Corporation's Deposit Insurance Fund minimum reserve ratio should be higher in order to increase the probability that the insurance fund will remain positive during a crisis, FDIC Chairman Sheila Bair said in prepared testimony for the Senate Banking Committee obtained by CNBC in advance.

The Deposit Insurance Fund's (DIF) minimum reserve ratio – measuring the insurance fund's balance versus the insured deposits – was raised to 1.35 percent from 1.15 percent when the Dodd-Frank Act financial reform legislation came into force.

But raising the rate even further, to 2 percent, would ensure that banks will not have high deposit insurance assessment rates when they are "strained by a crisis and least able to pay," Bair said in her testimony.

Banks that are covered by the DIF pay a fee to support the fund, which in turn covers their depositors.