A growing chorus of voices is denouncing a plan to siphon excess cash from the Savings Association Insurance Fund.
A 1996 law requires the Federal Deposit Insurance Corp. on Jan. 1 to withdraw from SAIF all money in excess of $1.25 for every $100 of insured deposits. Those funds-currently about $1 billion-would be transferred to a special reserve.
The reserve fund could only be tapped if the thrift fund fell below 0.625% of insured deposits. If thrift failures caused the fund to fall below 1.25%, assessments paid by thrifts and some banks would be increased.
Witnesses testifying Thursday at a House Banking Committee's subcommittee hearing urged lawmakers to repeal the plan.
E. Lee Beard, president and chief executive officer of First Federal Bank, Hazleton, Pa., and representing America's Community Bankers, said creating such a special reserve could lead to higher premiums and a "loss in public confidence."
FDIC Chairman Donna A. Tanoue agreed, warning that charging different premiums for the same insurance would cause SAIF members to try to move deposits to the Bank Insurance Fund.
The Clinton administration has agreed not to fight a repeal.
"Such a change should not adversely affect the budget or have untoward consequences for the deposit insurance funds," said Richard S. Carnell, assistant Treasury secretary for financial institutions.
Ms. Tanoue and other witnesses urged the financial institutions subcommittee to add to regulatory relief legislation a provision repealing the special reserve.
None of the lawmakers at the hearing expressed an opinion on repealing the reserve provision.
