The Federal Deposit Insurance Corp. Monday laid out a plan to plug a regulatory loophole that is letting deposits seep out of the thrift insurance fund.
H.F. Ahmanson & Co.'s Home Savings of America already has charged through the loophole, moving $3.3 billion in deposits to the Bank Insurance Fund.
Regulators are scrambling to preserve the Savings Association Insurance Fund, especially now that Congress appears unlikely to enact legislation that would capitalize it.
On Monday, the FDIC proposed changing the formula it uses to calculate the thrift deposits owned by so-called Oakar institutions - banks or thrifts whose insurance is split between the two funds. Institutions that own thrift deposits must continue to pay premiums into the Savings Association Insurance Fund. To determine how much a bank must pay, the FDIC figures out how much a bank's deposits have increased or decreased each year. Then the agency takes the overall change and applies it to the original thrift deposit figure.
For example, if a bank's deposits grew overall by 5%, then the FDIC would assume thrift deposits also grew by 5%. Right now, the FDIC does not factor in deposit acquisitions. The rule proposed Monday also would exclude deposit sales from the calculation. It could affect 879 Oakar banks.
"This is an artificially complicated proposal made necessary by a continued effort to keep the funds separate," said FDIC Chairman Ricki Helfer, who noted "the strongest deposit insurance fund would be one fund."
Home Savings in December drastically reduced its thrift-fund deposits by selling its New York branches. Under the new FDIC rule, such shrinkage would not reduce an institution's thrift fund deposits for purposes of calculating its premium.
The Home Savings example was "clearly the most significant case" because it involved such a large shift, said Fred Carns, an assistant director in the FDIC's division of insurance. "That's what got our attention."
But, he added, such a shift could occur with any Oakar institution selling deposits. For that reason, FDIC officials want to close the loophole and have the rule changes apply to transactions after June 30.
The FDIC board on Monday also proposed calculating Oakars' thrift deposits quarterly rather than on an annual basis.
But the agency also is planning to give Oakars a break on paperwork. Banks owning thrift deposits now have to complete a complicated growth adjustment worksheet, Mr. Carns said. The FDIC has proposed eliminating the worksheet, and doing the calculations itself. "The FDIC will ask for a few pieces of information and we will perform the calculation," Mr. Carns said.
