May 1 (Reuters) -

Significantly increasing the federal backstop for bank accounts used for payroll and other business needs is the "most promising option" for improving financial stability relative to bank risk-taking, the Federal Deposit Insurance Corp said in a report Monday.

The FDIC laid out the case for what it called 'targeted' deposit insurance coverage in a comprehensive overview of the federal deposit insurance system, one of three options it considered in the 76-page report. Such coverage has "significant" unresolved challenges, the report said, including how to define such accounts and prevent depositors and banks from taking advantage of the more generous insurance.

FDIC Chair Martin Gruenberg asked staff to undertake an analysis and review of options for reform of the deposit insurance system after the collapse of Silicon Valley Bank and Signature Bank in March, when regulators ended up backstopping all deposits to prevent contagion to the banking system. (Reporting by Ann Saphir and Hannah Lang; Editing by Andrea Ricci)