Fair Solution on S&L Premiums In Banks' Interest, Helfer Says

WASHINGTON - Bankers cannot ignore the brewing problems facing their competitors in the thrift industry, Federal Deposit Insurance Corp. Chairman Ricki Tigert Helfer warned Thursday.

Just two days after proposing to drop bank deposit insurance rates 83%, Ms. Helfer reminded a group of bankers that thrifts will continue to pay historically high prices for the government's backing.

Seeking to bridge this rate gap, the thrift industry is scrambling for fixes. In addressing the New York State Bankers Association, Ms. Helfer - without providing any details - admonished bankers to become part of the solution.

"If I were a banker, I would not close my eyes to the SAIF (Savings Association Insurance Fund) problems and hope they magically disappear," Ms. Helfer said. "I would involve myself in working with all the interested parties to make sure that the inevitable solution is both effective and fair."

Ms. Helfer also pressed for the power to raise or lower premiums by 5 cents without going through the time-consuming formal rulemaking process.

This idea was floated at the FDIC meeting Tuesday, but was overshadowed by news of the new rates, which will range from a low of 4 cents per $100 of domestic deposits for the best banks to a high of 31 cents for the riskiest banks.

"We are proposing to increase or decrease the assessment schedule - across the board - by up to 5 basis points," she said. "Prudence also requires us to be able to change assessment rates as conditions change."

The FDIC is airing its premium-reduction plan for 60 days. The ruling is expected to be finalized in May and take effect in the fourth quarter.

James D. McLaughlin, director of agency relations at the American Bankers Association, endorsed the idea Thursday as a way to speed rate cuts in the future.

"I think they need some flexibility in setting the rates," he said, predicting "they will very quickly have to drop it below the 4-cent level."

While some industry leaders are questioning whether premiums should be even lower, Ms. Helfer defended the 4-cent minimum premium.

"For about half of our existence, the effective assessment rate for FDIC insurance was less than 4 basis points," she said. "Experience showed that this was not enough."

Besides, Ms. Helfer said, a number of risks threaten to produce losses in the banking system.

Her list of dangers includes: growing competition from nonbanks; more risk taking due to financial innovation; and increasingly variable interest rates.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER