The Federal Deposit Insurance Corp. proposed a rule Tuesday that defines when a thrift is illegally shifting deposits to an affiliated bank.
Under the proposal, the agency would use a formula to distinguish between deposit shifts that occur in the ordinary course of business and those that are orchestrated by the institution to dodge higher thrift insurance fund premiums.
Any thrift deposits shifted in violatation of the rule would be subject to a 90-basis-point fine when they leave the savings association fund and a 100-basis-point fine when they enter the bank fund.
The proposal affects about 135 holding companies that own institutions with deposits in the Bank Insurance Fund and the Savings Association Insurance Fund.
On a quarterly basis, a statistical program would red-flag institutions that show abnormal levels of deposit migration. The formula is based on the historical average for each institution and for the industry.
If the FDIC determines that deposits are being shifted at abnormally high levels, the banks and thrifts would have to prove they were not encouraging customers to shift deposits.
In an open meeting FDIC board member Joseph H. Neely questioned whether the proposed regulation would make institutions guilty until proven innocent.
Chairman Ricki Helfer, however, said the proposal gives institutions an opportunity to argue that they are not illegally shifting deposits.
Some directors were not satisfied. "The big issue to me is, 'Do we really need to burden the industry with this?'" asked Comptroller of the Currency Eugene A. Ludwig, who sits on the FDIC's board.
Still, the FDIC voted unanimously to put the proposal out for comment for 60 days.
Industry officials questioned whether the formula is too complex.
"It does seem like a fairly complicated procedure, which gives us some concern," said Robert R. Davis, director of government relations for America's Community Bankers.
"I'm still trying to figure out" the formula, said James D. McLaughlin, director of regulatory and trust affairs for the American Bankers Association.
Trying to construct a statistical test to distinguish between legal and illegal types of deposit shifting is like trying to define pornography, said Bert Ely, president of Ely & Co., the Alexandria, Va.-based financial consulting firm. "It's hard to describe, but when we see it, we know what it is."
Congress passed legislation in September that prohibited banks and thrifts, through 1999, from encouraging customers to switch deposits from the Savings Association Insurance Fund to the Bank Insurance Fund to avoid the slightly higher thrift fund premiums.
Critics have questioned whether the FDIC still needs to implement a regulation, because the disparity in premiums between the two thrift funds was virtually eliminated by the legislation.
