FDIC planning major overhaul of premium collection system.

WASHINGTON Deposit insurance is about to undergo the most sweeping changes smce its creation in 1934.

The Federal Deposit Insurance Corp. is expected to decide next month to change the timmg and method banks use to pay for deposit insurance.

Premiums will be collected every quarter via an automatic electronic debit starting in mid-1995.

Beyond these changes, the agency plans this month to begin an open-ended search for the best way to overhaul the system.

This quest could rejigger the assessment base and increase the range of premiums paid by different banks.

The FDIC wants to hear from the public before formulating this wide-ranging proposal, so it will issue an advance notice of proposed rulemaking before writing a specific plan.

The more immediate changes regarding payment timing and method were proposed on June 10. Comments were due last month.

While some bankers praised the efficiency of the electronic quarterly payments, others complained that the new system will be cumbersome and costly.

"To collect quarterly ... will cost banks more and cause us to have to deal with this four times a year instead of twice," said Harvey N. Clapp, president of Peachtree Bank in Maplesville, Ala. "This, along with the hundreds of other 'small improvements,' as you so lightly refer to them, have created a nightmare for banks."

The other big change to deposit insurance was the FDIC's switch in 1992 to a risk-based system, under which the riskiest banks pay the highest premiums.

While most people who wrote in were less frustrated, Mr. Clapp speaks for many bankers who don't understand what's wrong with the current system of paying premiums twice a year by mailing a check to the FDIC.

In its proposal the FDIC argued that quarterly payments through the automated clearing house network would be simpler.

The task of calculating premiums will be shifted from the banks to the FDIC. However, a bank will still be required to file "certification" statements twice a year, attesting to the FDIC's figures.

The agency has no leeway to lessen the paperwork; it is written into law.

Banks will set up an ACH account that the FDIC can debit for premium collections. The agency will send a bank an invoice and then tap the ACH account 30 days later. The agency will use the previous quarter's call report to determine the insurance tab.

For example, the FDIC will use the Sept. 30 call report to calculate the first quarter's insurance bill. The bank will get an invoice on Nov. 30, and the ACH debit will occur Dec. 30.

Todd M. Vallie, vice president at Prineville (Ore.) Bank, said the new system strips the banking industry of control.

"We have lost enough control to others; paying our bills should not be included," Mr. Vallie wrote. "Let us calculate and mail our payment - do not get in our electronic back pocket."

Many bankers, in comment letters, worded that mistakes will be hard to correct.

"The world of electronic transfers may in fact be quick, but we have found that error correction can be a lengthy and frustrating problem," wrote Robert E. Hamilton, president of Saline Valley Bank, Lincoln, Kan.

Bankers also said the FDIC was unfair in giving banks 60 days to appeal a premium bill while the agency put no time constraints on its response.

AI Long, an assistant director in the FDIC's finance branch, said the. final regulation will set a timetable for both sides.

"We want to build in some assurance that our intent is to make it better, not worse," he said. "We will give ourselves a deadline."

Mr. Long also tried to quell another banker concern. When the new system starts, it is true that the first payment will be 30 days sooner than under the current system.

But moving to quarterly payments means only half that payment will be due early. The other half will be paid 60 days after the current system's due date, so banks will have access to more money longer, Mr. Long said.

"The use-of-funds advantage falls to the banks," he said. "We did it that way on purpose."

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