Snubbing Thrift Fund Is Harmful to Banks, FDIC Chairman Says

Federal Deposit Insurance Corp. Chairman Ricki Helfer exhorted bankers Wednesday to support legislation capitalizing the thrift insurance fund.

Even though the Bank Insurance Fund is healthy, a weak Savings Association Insurance Fund will affect banks as well as thrifts, Ms. Helfer told the 1,300 bankers attending the Independent Bankers Association of America's annual convention here.

"As long as the SAIF is weak - absolutely and in relation to the BIF - the shadow of uncertainty remains over banking," she said. "What affects one fund affects the other.

"Whether the effects are obvious or not, its weakness undermines the FDIC seal you see on your door."

By contributing to the thrift fund rescue, banks can prevent a shift of deposits into the bank fund, Ms. Helfer said. This would avoid a dilution of the bank fund's base, which would force banks to pay higher premiums to keep the fund at $1.25 for every $100 in domestic deposits.

"To be blunt, every time a thrift deposit shifts to the BIF, it goes without any reserves," she said. "Bankers must pay for the reserves the thrift deposits do not carry."

Legislation pending in Congress would require banks to shoulder about 75% of the $780 million in interest payments due every year for the next 20 years on Financing Corp. bonds.

Many bankers do not realize that an exodus of thrift deposits will increase their deposit insurance premiums, Ms. Helfer said in an interview after her speech. "I don't think that factor has been taken into account," she said.

But Ms. Helfer's speech did not appear to sway bankers opposed to footing the bailout bill.

"I really don't feel any better about having to pay for someone else's mistake," said Leonard R. Fitzgerald, chairman of First National Bank, Jefferson, Texas.

"While her argument may be valid in a technical sense, it is still going to be a tough sell to ask bankers to pay ... for a problem they didn't create," added Ron Ence, the IBAA's director of legislative affairs.

Separately, House Banking Chairman Jim Leach, R-Iowa, said he is considering introducing legislation that would bar government-sponsored enterprises from chartering deposit-taking institutions.

The measure, a response to a recent attempt by the Farm Credit System to charter a credit union, could be attached to Glass-Steagall legislation if it reaches the House floor, Rep. Leach said.

"I would like to definitively solve the issue so it doesn't come up again," said Rep. Leach, who addressed the IBAA convention via satellite from Washington.

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