Bank Deposit Insurance to Remain Free In First Half

More than 95% of the banking industry will continue to get deposit insurance free of charge next year.

The Federal Deposit Insurance Corp. voted Tuesday not to levy any premium on 9,538 banks during the first six months of 1997. Troubled banks will continue to pay up to 27 cents per $100 in domestic deposits.

The FDIC is expected to set thrift premium rates - also ranging from zero to 27 cents - at its Dec. 11 meeting.

FDIC Chairman Ricki Helfer said the strong condition of the Bank Insurance Fund provided "clear justification" for dispensing with premiums for most of the industry. "We're happy we can recognize the impact in a material way," she said.

The agency also decided to refund the $500 minimum charge healthy banks paid for fourth-quarter coverage. The refund was required because legislation enacted Sept. 30 to capitalize the thrift fund eliminated the minimum $2,000 assessment.

In total, $4.5 million will be returned to roughly 8,700 institutions. (The agency is not returning fees paid by "Oakar" banks, which acquired deposits insured by the Savings Association Insurance Fund.)

As required by the new thrift law, the FDIC said all insured institutions will begin servicing Financing Corp. bonds on Jan. 2. Those bonds were floated in the late 1980s to bail out the thrift industry.

The first quarter payment will be $198 million. Banks are expected to pay 0.64 basis point per $100 of domestic deposits, while thrifts will pay 3.2 basis points, though the exact amounts will be set at the FDIC's Dec. 11 meeting.

At that meeting, Ms. Helfer said the FDIC also will vote on a controversial plan to make thrifts pay the money due on Fico bonds during the fourth quarter.

America's Community Bankers, the thrift trade group, has argued that the Sept. 30 law capitalizing the thrift fund stripped the FDIC of authority to levy Fico assessments during the fourth quarter.

But the agency is expected to make thrifts shoulder the $199 million payment.

The FDIC's decisions to continue free deposit insurance and refund the last payment for 1996 were "very good news," said James H. Chessen, chief economist of the American Bankers Association. "It means if banks continue to perform well, they will pay extraordinarily low premiums."

The FDIC first slashed bank premiums in mid-1995, then dropped the rate to zero in January.

For the quarter ended Sept. 30, the bank fund's balance stood at $26.1 billion, up $1.03 billion from a year earlier. FDIC officials said the fund's reserve ratio won't be calculated until next month when the agency receives final numbers for insured deposits in the thrift quarter.

Mr. Chessen estimated the fund will hold $1.30 for every $100 in insured deposits. That would be a decline from June 30, when the ratio stood at 1.32%. The drop is due to legislation that allowed Oakar banks to shift some deposits from the Savings Association Insurance Fund to the bank fund.

Interest income is expected to fuel the bank fund's continued growth well beyond the required 1.25% ratio. "That leaves hundreds of millions of dollars to cover bank failures, which are very unlikely," Mr. Chessen said.

Five banks had failed through September, versus six in all of 1995. Assets held by failed banks this year dropped substantially, however, to $183 million during the first nine months, from $753 million in all of 1995. In 1993, by comparison, 41 banks failed with assets totaling $3.54 billion.

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