WASHINGTON - The Federal Deposit Insurance Corp. scored a major legal victory last week as a federal appeals court affirmed the agency's decision to terminate a bank's coverage.

In a May 18 decision, the U.S. Court of Appeals for the 4th Circuit said the FDIC could pull deposit insurance from Doolin Security Savings Bank, a New Martinsville, W.Va., thrift that refused to pay its premium in full.

The case began in 1993, when Doolin objected to being placed in the second-best deposit insurance premium category. As part of its risk-based premium scheme, the FDIC slots insured institutions into one of nine categories based on the amount of capital they hold and the risk they pose to the insurance fund.

Banks with the best ratings are placed in the 1-A category and pay the lowest premiums. Doolin was in the 1-B category and paid the second-lowest premium.

To protest its classification, Doolin paid the FDIC at the lowest rate. The FDIC demanded full payment and in November 1993 moved to terminate Doolin's deposit insurance.

The matter then went to an administrative law judge, who in February 1994 sided with the FDIC. Doolin sued in July and the appeals court told the FDIC not to cut off insurance until the case was tried. Arguments were heard in Doolin Security Savings Bank FSB v. Federal Deposit Insurance Corp. on Dec. 5.

In its decision in Case No. 94-1877, the court rejected Doolin's argument that Congress had intended risk-based premiums to be set by objective measures such as capital.

"We decline to hold unreasonable the FDIC's conclusion that the subjective supervisory reports of primary regulators are relevant to determining whether an institution would cause the insurance fund to incur a loss," the ruling states.

John Deal, the lawyer representing Doolin, said Friday the bank is still analyzing the decision and weighing its options.

"The irony of this is, in Doolin's most recent exam, it earned the highest possible rating," he said. "The FDIC has never provided a justification for 1-B."

For its part, the FDIC claimed victory on all counts.

"The court threw out all of Doolin's arguments," FDIC spokesman David Barr said.

Doolin has 15 days to ask the 4th Circuit for a rehearing. If it does not, the bank has 60 days to pay the $15,000 it owes the FDIC or the agency will pull its insurance, Mr. Barr said.

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