building its reserves beyond 1.25% under a compromise between the House and Senate banking committees. The reserve cap would be a victory for banks, setting the stage for 92% of the industry to get deposit insurance for free. Industry leaders have argued that banks should not have to pay premiums once the insurance fund reaches its congressionally mandated level of $1.25 for every $100 of insured deposits. Currently, the bank fund's reserve ratio is 1.30%. Still unclear Monday: how the government will determine which institutions are exempt from paying premiums. These questions are wrapped up in legislation to rescue the Savings Association Insurance Fund. Last week, House Banking Committee Chairman Jim Leach agreed to accept the Senate's narrow financial fix. In return, his Senate counterpart, Alfonse M. D'Amato, pledged to move separate legislation by April to merge the bank and thrift insurance funds and eliminate the thrift charter. As part of the deal, industry sources say, the committees also have agreed to cut by as much as $350 million the bill faced by the so-called Oakars, banks that own thrift deposits. To pay for the rescue, Congress wants to charge an 85-cent fee on every $100 of thrift deposits. However, Oakars have been arguing that they should not have to pay the full fee because the thrift deposits they bought have run off. Lawmakers have agreed to reduce Oakar banks' thrift holdings by 20% before levying the fee, and make the assessment tax-deductible. Representatives of both committees are scheduled to meet today to continue discussions on the thrift fund fix, which is part of a broader budget bill. Representatives from both committees are still working on how to return excess premiums collected by the bank insurance fund. The House proposal would allow full rebates to institutions receiving regulators' top two performance ratings, whereas the Senate version would grant the FDIC more discretion to set premiums. Bankers are worried that the FDIC may take advantage of this power, reducing the number of institutions eligible for full premium rebates. "You need some objective test," said Edward L. Yingling, chief lobbyist for the American Bankers Association. "Bankers feel so strongly that the fund is overcapitalized and they want their money back," said Karen Shaw Petrou, president of ISD/Shaw, a Washington banking consultancy. "With the mood the industry is in, the certainty of a premium rebate is more important than the integrity of the risk-based system." Currently, the FDIC charges banks between 4 cents and 31 cents for insurance, depending on how much risk the institution poses to the fund. FDIC and Treasury Department officials have argued that the insurance funds must be managed for the long term, not just the next quarter. "It's not as though the risk is zero for any institution the FDIC takes on," said Richard S. Carnell, assistant Treasury secretary. "It is not realistic to manage the fund to a knife-edge figure."

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