WASHINGTON -- The Bank Insurance Fund is back in the black and debt free for the first time since 1991.

The Federal Deposit Insurance Corp. said Tuesday that the insurance fund repaid its final $2.5 billion in borrowings from Treasury on Aug. 6. The fund's balance, too, rebounded - to $6.8 billion at June 30 from negative $100 million at yearend 1992, according to the FDIC's midyear financial update.

Just 18 months ago, the fund was $7 billion in the red.

Premium Prospects

The improving financial picture sets the stage for quicker-than-expected reductions in the deposit insurance premium that banks pay. The FDIC is bared by law from lowering premiums below 23 cents per $100 of deposits before the insurance fund's ratio of reserves to insured deposits hits 1.25%.

With the fund at $6.8 billion, the fund has just 35 cents for every $100 if insured deposits.

The FDIC's official estimate has premiums declining in 2002, but FDIC staff members have said they think premiums will come down in 1998.

Acting FDIC Chairman Andrew C. "Skip" Hove improved on the prediction Tuesday, telling reporters that premiums could come down as early as 1996. Mr. Hove did hedge his prediction by saying that if the economy sours, premiums may not be reduced until 1999.

Mr. Hove credited the turnaround in the FDIC's fortunes to the dramatic decline in the number of bank failures the added income from higher premiums, and expensive savings.

"We're very happy to be debt free," Mr. Hove said during an open meeting of the FDIC board. "This loan repayment should help demonstrate that the insurance fund is recovering from the financial strains of the past, and that the fund will not become another drain on the American Taxpayer."

In 1991 Congress gave the FDIC the right to borrow from Treasury. The agency took its first loan in June 1991, and borrowing peaked at $15.1 billion in June 1992. The FDIC began paying back its loans last September; interest on the borrowings totaled $739.4 million.

Trade Group Blames GAO

The American Bankers Association seized the opportunity to blast the General Accounting Office's audits of the insurance fund over the past two years. The GAO forced the FDIC to bulk up its reserves to cover bank failures that never materialized.

The fund was never insolvent, the ABA argued Tuesday. It blamed the GAO for shoving the Bank Fund into the red in 1991.

In a letter to Comptroller General Charles A. Bowsher, the ABA asked the GAO to restate the fund's size as of the end of 1991 and 1992. According to the ABA's figuring, the fund had $3.2 billion at yearend 1991 and $6.5 billion at yearend 1992.

Also at the meeting yesterday -- he first since June 17 - the FDIC proposed interim rules regarding the national depositor preference provisions that became law yesterday, when President Clinton signed the massive budget bill. The new law requires the FDIC to be repaid before nondepositor creditors when a bank fails.

The rules that the FDIC put in place Tuesday merely clarify that administrative expenses related to a bank's failure will continue to be paid before anyone gets a dime, including depositors. Such expenses include the final payroll as well as data processing services and utilities. The FDIC said it will not cover "golden parachute" payments for severance pay claims.

Also at the meeting, the FDIC revised its branch closing policy. All the agencies will eventually make the same changes, which implement the FDIC Improvement Act.

Banks wishing to close a branch must give regulators and customers 90 days' notice. Signs must be posted in the branch 30 days before the closing. Automated teller machines and temporary offices are not considered branches under the rules.

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