Banks, S&Ls; May Pay More for Insurance

WASHINGTON —  A divided Federal Deposit Insurance Corp. board Tuesday voted for hefty increases in the premiums paid by banks and thrifts for the insurance funds that protect the deposits of millions of Americans.

The proposed increases, which would take effect Jan. 1, would boost the premium to 28 cents per $100 of deposits from the level now of 23 cents. The banking industry would pay an additional $1.25 billion a year and the thrifts another $390 million.

Customers may be forced to pay more for financial services, including increased fees for checking accounts and loans, as banks try to pass along the burden of higher premiums.

The board also voted to ask for comments on proposed risk-based premiums for banks and thrifts, with the healthiest financial institutions paying the lowest rates and shaky firms paying much more. If the new system were adopted, the government would collect an average of 28 cents, with the strongest institutions paying 25 cents and the shakiest ones paying 31 cents.

The general rate increase and risk-adjusted premiums need formal approval from the FDIC board after a 60-day comment period.

FDIC Chairman William Taylor, arguing that the evidence is “overwhelming,” said it is essential to rebuild the funds to pay for future financial failures. But he prevailed only on a 3-2 vote, over the opposition of the chief thrift regulator, Director Timothy Ryan of the Office of Thrift Supervision, and acting Comptroller of the Currency Stephen Steinbrink.

The agencies headed by Ryan and Steinbrink are part of the Treasury Department, and the Bush Administration has opposed a premium increase, arguing that it would hamper the recovery.

But Taylor, whose agency is independent, was determined to push through the boost in premiums. The FDIC staff suggested the increase could range from 25 cents to 30 cents, leaving the decision to the board. Taylor won the support of FDIC Vice Chairman Andrew Hove and member C. C. Hope to build his majority.

“We’re disappointed,” said Christopher Rieck, a spokesman for the American Bankers Assn. “We have never seen any evidence which shows the case has been made for premium increases. The banking industry is in very solid shape, and this comes at a time when we feel there is really no need for it.”

Banks wrote off $33 billion last year, largely to account for real estate losses, and set aside a reserve of $34 billion for future losses. Despite these big costs, the industry still reaped $19 billion in profit, Rieck noted. With the banking business becoming healthier, a premium increase to pay for future bank failures “doesn’t seem justified from our perspective.”

“We are not happy about paying more, but far worse would be allowing the Bank Insurance Fund to go dry,” said Charlotte LeGates, vice president of the National Council of Community Bankers.

The Bank Insurance Fund’s outlays for failed institutions have exceeded its premium income every year since 1984. The protracted losses exhausted the fund’s reserve balance, and it fell into the red last year. It was $4 billion in the black as recently as 1990.

Premiums have increased sharply, from 8.3 cents in 1988, as federal regulators struggled with the problem of extracting enough money from the healthy segment of the industry to pay the costs of disposing of crippled banks while protecting their depositors.