WASHINGTON -- A small bank's crusade against the riskbased premium system has taken a potentially fatal turn, as the government began taking steps to yank its deposit insurance.

Doolin Security Savings Bank, New Martinsville, W. Va., will lose its coverage by the end of August unless it pays overdue premiums.

In a June 29 decision that was released Tuesday, the Federal Deposit Insurance Corp. said it would terminate Doolin's insurance because the $55 million-as-set federal savings bank has been withholding a portion of its deposit insurance payment for 18 months.

The bank has already sued the FDIC.

Appeals Court Stay Sought

Doolin's lawyer, John C. Deal of Emens, Kegler, Brown, Hill & Ritter in Columbus, Ohio, said Tuesday that the bank is seeking a stay of the FDIC's order in the U.S. court of appeals in Richmond, Va.

Doolin has also asked the court to decide whether the FDIC has the authority to establish a subjective system for premium assessments.

Doolin has paid its premiums, but at a lower rate than the one assigned by FDIC.

The bank disagrees with the supervisory rating FDIC assigned it under the risk-based premium system. Doolin owes the FDIC about $16,000.

Pay First, then Argue

In its order, the FDIC said it cannot tolerate banks selecting their own premium rates.

"Unless depository institutions are rquired to pay their assessments in full and then dispute an assessment with which they disagree, the insurance funds would be jeopardized," the order against Doolin reads.

"Were institutions free to withhold payment and force the FDIC to sue each such institution to recover every semiannual assessment withheld, the FDIC could not operate the funds in a fiscally prudent manner," the FDIC added in its order.

Doolin has been fighting the new premium system since its inception.

Premium Based on Risk

In January 1993, the FDIC began basing insurance rates on the risk a bank poses to the Bank Insurance Fund.

The riskier a bank, the more it pays the FDIC. These risk-based premiums start at 23 cents per $100 of deposits and climb to 31 cents.

Using a nine-box matrix, the FDIC slots banks into a category ranging from 1-A for the best banks to 3-C for the worst.

Under the risk-based system, a bank's capital is toted up and it is slotted into one of three capital categories.

Based Mainly on Exam

Next, one of three supervisory ratings is assigned, based mainly on the bank's last exam.

FDIC put Doolin in the 1-B box, meaning it got the second-best rate of 26 cents.

Believing it deserved the best rate, Doolin only paid the FDIC at the 23-cent rate.

After 18 months of wrangling, the FDIC is demanding the 3-cent difference, plus interest.

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