WASHINGTON - The Federal Deposit Insurance Corp. is expected to announce Tuesday that the Bank Insurance Fund grew nearly $2 billion in the third quarter to hit an all-time high of $19.4 billion.
The fund's previous high was $18.3 billion at yearend 1987.
The impressive growth bodes well for banks hoping to see a huge cut in insurance premiums next year.
Less than two years ago, the bank fund was insolvent. The FDIC boosted its rates to rebuild the fund, and recapitalization has been occurring faster than anyone predicted. The fund increased 48% in the first nine months of 1994.
At an open meeting on Tuesday, the FDIC board will be given the good news as the agency's chief financial office, Steve Seelig, delivers his third-quarter financial report.
The fund is now just $5.6 billion shy of the critical 1.25% target. Once that goal is attained, deposit insurance premiums are expected to fall as low as a nickel per $100 of domestic deposits from the current range of 23 cents to 31 cents.
At a nickel, the industry's annual savings would total $4.5 billion. BankAmerica with its huge domestic deposit base, would be the big winner as its annual BIF tab dropped to $50 million from $230 million.
In 1989 Congress prohibited the FDIC from lowering premiums until the bank fund had $1.25 for every $100 of insured deposits. With $19.4 billion, the bank fund has $1.03 for every $100 insured.
Deposit insurance experts expect the 1.25% target will be met in the first quarter of 1995. "They are building right on track," said Bert Ely, a consultant in Alexandria, Va.
"When the FDIC acts in March on premiums for the second half of 1995, they should be able to vote a substantial premium reduction," he added. "They ought to be able to cut them at least 20 basis points."
If and when that happens, banks will be paying much less for the government's backing than thrifts.
The thrift industry's reserves are kept in the Savings Association Insurance Fund, which at Sept. 30 had $2 billion. That means the thrift fund has just 29 cents for every $100 of insured deposits.
Because SAIF needs about $8.6 billion to make the 1.25% ratio, thrifts cannot expect a rate cut until 2002.
The thrift industry is arguing that a rate disparity should be averted by merging the two funds, but the banking industry opposes the plan. For now, it appears banks are winning the battle.
Incoming House Banking Committee chairman Jim Leach, R-Iowa, last week endorsed lowering bank premiums as soon as the fund hits the 1.25% goal.
Two members of the FDIC board also are on record as supporting a rate cut for banks. FDIC Vice Chairman Andrew C. Hove and Comptroller of the Currency Eugene A. Ludwig have said in recent speeches that they support lowering premiums when the bank fund reaches 1.25%.
The FDIC's new chairman. Ricki R. Tigert, has not said anything on the matter. But that may change on Tuesday when the agency holds its first open meeting in nearly two months. It will be Ms. Tigert's first open meeting.
