Banking industry associations responded coolly yesterday to the prospect of a deposit insurance levy.Steven Munchenberg, chief executive of the Australian Bankers Association, said: "We are not happy about it, primarily because we think it is not necessary.""Australia is different from overseas. We've got legislated depositor preference."You'd need a bank to burn through all its capital and 40 per cent of its assets before you even need to think about such a scheme."We know here [that] with smaller institutions [in need of help] others assist - for example, CBA bought Bankwest, and bankmecu bought [the] Fitzroy and Carlton Community Credit Co-operative.  "And it impacts [on] the deposit market at time when regulators and ratings agencies are keen for them to lift deposits."Munchenberg confirmed banks could be expected to pass on the cost of the levy to depositors. Louise Petschler, chief executive of the Customer Owned Banking Association, said the industry had questions concerning whether a pre-funded scheme might have an "adverse impact" on customer-owned institutions."Our chief concerns are the impact of any levy on smaller institutions and what such a levy will mean for competition and choice," she said in a statement."We don't want a system which leads to smaller players paying comparatively more than larger ones, delivering big banks a competitive advantage."The COBA's rationale seems to be that customer-owned institutions source a greater proportion of funding from deposits, and, because of this, may pay more than the large banks.