WASHINGTON -- Despite a declining workload, the 1994 budget for the Federal Deposit Insurance Corp. is shrinking just $100 million, or 5%, to $1.95 billion.
The agency's staff, however, is expected to shrink 17%, or 2,573 jobs, to 12,529, by the end of 1994, chief financial officer Steven A. Seelig said at an open meeting of the board Tuesday.
Also at its meeting, the FDIC board proposed a new rule to incorporate Financial Accounting Standard 115 - the so-called mark-to-market rule - into bank capital regulations. The industry has 30 days to comment.
Varying Effects on Capital
Under the plan, any unrealized gains or losses on securities that a bank places in the "available to sale" category will be factored into risk-based capital. Any changes to capital forced by this new rule would affect bank's Tier 1 capital
The FDIC is the first of the banking agencies to propose this rule, but the other regulators are expected soon to follow suit.
While interest rates are low, said the chief of the FDIC's accounting section, Bob Storch, the proposed rule would let banks boost capital. He added, however, that when rates rise those securities' value could decline and drag down capital ratios.
The FDIC specifically asked for industry comment on whether the changes in capital brought by this new rule should also apply to capital calculations under the agency's risk-based premiums or its prompt-corrective-action rules. Those rules let examiners impose more and more severe sanctions on a bank as its capital declines.
Also at the meeting, the FDIC voted to reduce the risk weighting for multifamily housing loans to 50%, from 100%. This cuts the capital required to back up such loans. The other banking agencies also are adopting this change.
Savings Deferred to 1995
Regarding the agency's budget, cost savings from staff reductions will not materialize until the 1995 budget, Mr. Seelig said. But in 1995, the cutbacks should save the agency $90 million to $100 million.
Still, critics who expected the agency to shrink costs more than 5% in 1994 were confounded.
"Only 5% Boy that's not enough," said Bert Ely, a banking consultant here. "A 5% cut is nowhere near enough."
But Mr. Ely said the 1994 budget may be inflated by severance costs associated with trimming the staff. "It does cost money to wind an organization down," he said.
The Rush of Failures
The FDIC bulked up its staff to handle record bank failures and the assets left behind by closed banks. During eight years, from 1985 through 1992, the agency handled 1,318 failed banks with $212 billion in assets, and its staff more than doubled, to 16,608, from 7,125.
In September, the agency announced plans to whittle its liquidation force by 3,300 jobs. The supervision division is also being cut next year, Mr. Seelig said.
Fewer than 50 banks, with less than $4 billion in assets, are expected to fail this year. The cost to the FDIC: about $40 million. By comparison, the FDIC spent almost $5 billion in 1992 cleaning up after 120 failed banks with $46 billion in assets.
Of the $1.95 billion the FDIC expects to spend in 1994, almost 75% will go toward liquidating assets. Another 21% is allocated to supervising banks.
Salaries and benefits consume 46.2% of the FDIC's budget. Outside services take another 34.5%. The balance is allocated as 8% for buildings; 5.4% for travel; 3% for equipment; and 2.9% miscellaneous.
The FDIC spent only $2 billion in 1993, though it had budgeted as much as $3.57 billion.