WASHINGTON - Shifting into spin control before they have issued reform proposals, Federal Deposit Insurance Corp. officials on Thursday released new figures to downplay fears that doubling coverage on bank accounts would trigger steep premiums.
Outside economists working for the FDIC have concluded that if coverage is increased to $200,000 per account, insured deposits would increase by $270 billion. That estimate, by Mark Zandi, chief economist for the forecasting firm Economy.com, includes existing uninsured deposits that would be covered and new deposits drawn into the system.
Contrary to the agency's projection of $400 billion, this increase would not be enough to cause the ratio of federal reserves to insured deposits to dip below the statutory minimum and prompt a premium assessment for the first time in four years.
Industry representatives welcomed the new estimate, and said it is more in line with their own predictions.
"I think $400 billion was intended as a worst-case estimate, and this number sounds closer to the real impact of an increase in coverage," said James Chessen, chief economist with the American Bankers Association. "But I think we can't just take a look at this particular issue, but look at the whole package."
Art Murton, director of the FDIC's insurance division, could not agree more. He said Thursday that the agency is weighing options for a comprehensive overhaul of the deposit insurance system, and that a change in coverage could come with several other alterations as well.
The FDIC is expected to unveil its proposals Wednesday. The agency had planned to issue them July 31, but was delayed because FDIC Chairman Donna Tanoue was in Hawaii attending to a family emergency.
Specifically, Mr. Murton responded to concerns that doubling coverage could cause banks to start paying 23 cents for every $100 of domestic deposits - the required remedy if the insurance funds drop below 1.25% of insured deposits.
He said one option the agency will offer is a return to the deposit insurance premium system that was used before the banking system's crisis began in the 1980s - when banks paid a steady, small premium each year into the insurance funds.
Mr. Murton said an advantage of what he calls the "user fee" arrangement is that only the banks that received new deposits would have to pay more in premiums.
"For those in the current system, banks that don't get more deposits would still have to pay more in premiums if the funds were diluted," he said. In the user-fee system, however, only banks that grow would have to pay higher premiums. There's another possible advantage, he said: Banks would no longer be required to pay stiff premiums if the fund dipped below 1.25%.
Some industry representatives welcomed this approach.
"Our sense is that community bankers would prefer a small, constant premium to one that wildly fluctuates and charges them high premiums when they can least afford it," said Karen Thomas, director of regulatory affairs for the Independent Community Bankers of America.
But discussion of a return to the older system also prompted questions about rebates. Until the 1980s, banks received a rebate of 60% of the excess premiums that they paid after each year. Mr. Murton said that the agency is considering rebates.
Mr. Murton also said the agency is looking at several pricing alternatives for the user-fee system, but he did not offer any specifics. He said that the rate could be based on the size of an institution's deposits as well as its "expected loss" to the insurance funds if it failed.
The current nine-box matrix, which rates an institution's risk based on capital reserves and their Camels scores, might be altered as well, Mr. Murton said. Currently, more than 90% of institutions are rated in the top risk category. To calculate an institution's risk, Mr. Murton said, the agency could consider factors including supervisory information, reported financial data such as call reports, and market data.
But some industry representatives said they will wait to review the full package before making any decisions whether to support any reforms.
"The jury is still out on this," said Diane Casey, president of America's Community Bankers. "We support some of these changes, but we want to know what the price will be."
Ms. Tanoue first raised the idea of doubling the coverage limit at a speech in March. It has garnered broad support from community bankers but has also come under political fire, drawing the opposition of Senate Banking Committee Chairman Phil Gramm, Treasury Secretary Lawrence H. Summers, and Federal Reserve Board Chairman Alan Greenspan. Both Mr. Summers and Mr. Greenspan argued at a Senate hearing two months ago that the previous hike in coverage helped to cause the thrift crisis.
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