W.Va., will cost the government $500 million to $800 million, making it one of the most expensive bank failures ever, the Federal Deposit Insurance Corp. said Thursday.

Though the Bank Insurance Fund has $30 billion in reserves, the agency had budgeted only $32 million for bank failures this year.

Typically the cost-to-asset ratio for large failed banks ranges from 10% to 15%. In First National's case, the projected ratio could grow as high as 71%. If the cost to the government exceeds $526 million, it would rank in the top 10 failures of the past two decades. A more precise loss estimate will be issued in early November.

The FDIC blamed the unusually high losses on the disappearance of $512 million of loans that bank officials had counted as assets, and on the bank's inflated estimate of the value of its residual interest in loans it securitized and sold.

FDIC accountants have been unable to locate the missing loans and are assuming they never will.

"We don't have the proof of exactly what happened," said Herbert J. Held, an assistant director at the FDIC's resolutions and receiverships division. "All we know is that the loans that were supposedly on their books aren't there."

Though the bank assessed its residual interest at $400 million, agency accountants said it is $250 million at most, and may be worthless. "It's the piece that's most difficult to sell, and there's a very limited market for it," Mr. Held said.

"We had big concerns with the methodology they (the bank's officials) were using to value the residuals," said a spokesman for the Office of the Comptroller of the Currency, the bank's primary regulator.

Adding to the cost, the task of paying off hundreds of millions of dollars in deposits has proved more difficult than the FDIC anticipated. About $500 million of the bank's deposits were located in just 100 brokered accounts, each with thousands of individual depositors. To identify those depositors and determine the extent to which they were insured, FDIC staff must contact each broker and ask for its customer list.

In doing so, however, the agency found that one large broker had acted as a broker for about 125 others, a discovery that meant even more accounting headaches.

"It's literally like an onion," an FDIC spokesman said. "You keep peeling back the layers, and you uncover something new every time."

Fred S. Carns, the FDIC's assistant insurance director, said a loss of this magnitude would knock down the fund's reserve ratio by about four basis points, to 1.36%, everything else being equal. That is well above the 1.25% ratio of reserves to insured deposits the fund is required to maintain.

But FDIC officials could not rule out the possibility that insurance premiums might have to be raised in 2000. "It's premature to talk about assessment rates for the first half of next year," Mr.. Carns said. "We're looking at all the information right now, and we'll be talking to our board in the next two months."

The FDIC's loss estimate for First National Bank of Keystone does not reflect the possible proceeds from any future lawsuits the agency might file, such as against the bank's directors and officers or the Grant Thornton accounting firm, which issued an "unqualified" opinion of the bank's finances at yearend 1998.

"Eventually, potential recoveries from professional liability suits will enter into the cost-estimate equation," an agency spokesman said. "But this early on in a failure, they're not calculated in."

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