Roughly 125 banks that currently enjoy cost-free protection from the nation's two deposit insurance funds may pay premiums in mid-2000.

The Federal Deposit Insurance Corp., which administers both funds, has redesigned a two-part test to identify which banks should be paying more. Currently 94% of banks and 92% of thrifts covered by the insurance funds have what's called an A-1 supervisory rating and therefore do not pay premiums.

The first part of the test requires applying four "screens" to banks' call reports to identify so-called outliers in areas such as the quality and concentration of assets, speed of growth, and change in business mix. The FDIC then contacts these institutions' primary supervisors to determine how well risks are being managed. Banks without excellent risk-management processes would be given six months to take corrective steps or be charged higher premiums.

The FDIC plans to run these tests twice a year to determine semiannual premium rates.

In a panel discussion at the America's Community Bankers convention here Tuesday, FDIC Chairman Donna A. Tanoue said she plans to announce the program this month, assuming her counterparts in the other agencies sign off on it.

The FDIC board is scheduled to meet Monday and is expected to hold premium rates steady for the first half of 2000. That would mean no change would take effect before the second half. Even then, FDIC officials said, banks facing higher premiums would only be bumped to 3 cents per $100 of domestic deposits.

But the agency is clearly serious about breaking down the A-1 category and forcing more banks and thrifts to pay for insurance. In an interview Wednesday, Arthur J. Murton, head of the FDIC's insurance division, said the first test has been applied to all insured banks and thrifts. Between 100 and 150 institutions have been targeted for higher rates. That group will be thinned out in the second phase of the test, as supervisors add their comments.

Office of Thrift Supervision Director Ellen Seidman supports the plan. "If there are A-1 institutions that aren't paying insurance premiums and are presenting supervisory risks, it behooves all of us that those institutions be flagged and that they be asked to reduce risks or that they pay premiums," she said at the ACB convention. As a member of the FDIC board, Ms. Seidman helps set insurance premiums.

The proposal is the FDIC's second attempt to develop a structure for redistributing the burden of deposit insurance premiums. An informal proposal circulated to the banking community was withdrawn in February after bankers and other regulators objected. It would have used the management strength and asset-quality portions of the Camels ratings as the first test in the process, but bankers complained that Camels grades rely too much on the subjective judgments of examiners.

Employing call report data was a move by the FDIC to make the process more objective. The decision to allow six months between "flagging" a bank and raising its premiums is also a response to bankers' objections.

"I'm glad they have built that in," said James Chessen, chief economist at the American Bankers Association. "Our bankers felt very strongly that there should be an opportunity to ... resolve any problems before there is an increase in their premiums."

Publicly, community bankers said they do not object to the FDIC's plan to set up screens. "It's in our best interests that the (insurance funds) remain strong," said David A. Bochnowski, chairman and chief executive officer at Peoples Bank in Munster, Ind.

But privately, some bankers asked why the formula needs to be changed when the insurance funds are already overcapitalized.

"If they go through with this, they are going to face a fight from the industry," said a community banker who asked not to be identified.

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