FDIC Cuts Budget By 8%; Sets Thrift Insurance Rates

The Federal Deposit Insurance Corp. approved its 1997 budget Wednesday, cutting $143 million or 8% from this year's spending.

Employee compensation - by far the agency's biggest spending category - will shrink 8.9% to $867 million next year. The cost of contract employees is being cut 16.5% to $413 million next year.

Salaries of full-time and contract employees will account for 79% of the FDIC's $1.6 billion 1997 budget compared to 82% of the $17.2 billion spent this year.

Also at its open meeting Wednesday, the FDIC set thrift insurance premiums for the first half of 1997. Eighty-eight percent of the industry will pay nothing for the government's backing, prompting FDIC Chairman Ricki Helfer to remark: "That is a great achievement for the industry and the health of the financial services sector."

Until Sept. 30, thrifts were paying at least 23 cents for every $100 of domestic deposits. But a law enacted that day levied a one-time fee on thrifts to capitalize the Savings Association Insurance Fund, paving the way for a cut in premiums.

The FDIC also set the exact price banks and thrifts must pay to cover interest due on the Financing Corp. bonds.

Starting Jan. 1, thrifts will pay 6.48 cents for every $100 of domestic deposits, while banks will pay 1.30 cents. These rates are expected to remain in effect through 1999, after which banks and thrifts will pay the same rate.

The FDIC also refused to refund roughly $200 million that thrifts paid to cover Fico costs during the fourth quarter. Thrifts had argued that other funds should be used to pay off the Fico bonds during the three months between Sept. 30, when the industry's insurance fund was capitalized, and Jan. 1, when a new law requires banks to start contributing.

The FDIC's 1997 budget continues the agency's downsizing. It anticipates a 10% reduction in staff to 8,781 by yearend. The FDIC travel budget will jump 30% next year to $89 million to cover re-location expenses as the agency shifts employees after closing field offices.

Receiving the biggest boost next year: the FDIC's executive offices, up 120% to $9.9 million, as they take over the $3.2 million cost of the agency's annual audit and spend $1.9 million to create an office of internal control management.

Among the divisions getting more money next year are: Insurance, up 64% to $6.89 million; Research, up 34% to $11.4 million; Consumer and Compliance Affairs, up 33% to $65.3 million; Information Resources Managament, up 21.5% to $231 million; and Supervision, up .3% to $263.5 million.

The FDIC's resolutions division took the biggest budget hit, losing 37% of its 1996 spending to $314.5 million. The decrease reflects the fact that few banks are failing, diminishing the FDIC's role as receiver of failed bank assets.

The Finance division will spend 24.4% less next year, or $98.5 million. The agency's Inspector General is being cut 21% to $39.4 million. Finally, the legal division is being trimmed 6.6% to $248 million.

Separately Wednesday, the Federal Reserve Board adopted a $2.03 billion budget for the 12 reserve banks, a scant 1.7% increase over 1996's spending levels.

The budget eliminates 335 positions and reduces capital spending by 6%. Also, merit raises will be limited to 3%, down from a projected 3.8% increase.

Jaret Seiberg contributed to this story.

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