Deposit Insurance Corp. has voted to drop its premiums to zero, shaving industry expenses by nearly $1 billion next year. Tuesday's decision means 92% of the nation's banks will get deposit insurance almost for free starting Jan. 1. Though FDIC Chairman Ricki Helfer has argued against cutting premiums, she acknowledged Tuesday that the agency had little recourse, considering the fund's strong financial performance. "I believe we have no choice under current statute," Ms. Helfer said during the agency's meeting on Tuesday. By law, the FDIC is required to keep the bank fund's reserves right around 1.25%, or $1.25 for every $100 of insured deposits. Despite an 83% rate cut this summer, the fund's reserves had grown to more than 1.30% by Sept. 30. "The numbers speak for themselves," said James A. Chessen, chief economist for the American Bankers Association. "I don't know how they could have come to another decision." The two rate cuts combined will contribute $5.4 billion to the industry's bottom line. The 9,723 well-capitalized, well-managed banks that qualify for free insurance will still have to pay the legal minimum of $2,000 a year. The rest of the industry - 845 banks - will be charged risk-based premiums of up to 27 cents per $100 of deposits. The FDIC board voted to drop its rates across the board by 4 cents. The average deposit insurance premium will be just 0.43 basis point a year - by far the lowest since the FDIC's creation in 1934. Bankers were jubilant. "We're very pleased the FDIC did the right thing," said Richard Mount, president and CEO of Saratoga National Bank in Saratoga, Calif., and president of the Independent Bankers Association of America. "With the fund reserve ratio comfortably above the required 1.25% and low bank failure rates, there was simply no justification to charge any premium for the best-rated banks." BankAmerica Corp. is the biggest winner. The rate cut will save the San Francisco-based behemoth about $40 million next year. Other banks to gain big include: NationsBank Corp., Chemical Banking Corp., and Banc One Corp. Without the rate cut, FDIC staffers said, Bank Insurance Fund reserves could rise as high as 1.40% of insured deposits by midyear 1996 - well above the target ratio set by Congress in 1989. With the lower premiums, the reserve ratio is expected to fall somewhere between 1.25% and 1.37% as of June 30. Not mentioned at Tuesday's meeting, but present in the minds of some observers, was the fact that Congress is on the verge of ordering the FDIC to set premiums at zero for well-capitalized, well-managed banks whenever the reserve ratio is above 1.25%. "What you have seen here is a reduction that reflects political reality in terms of what Congress is likely to do," said Bert Ely, an Alexandria, Va.-based banking consultant, who attended the meeting. Congress also is likely to pass legislation that will require banks to pay the bulk of annual interest due on Financing Corp. thrift-bailout bonds - which would jack up every bank's premium by 2.5 cents. That legislation also includes a plan to bring the Savings Association Insurance Fund up to a 1.25% reserve ratio. But for now, the thrift fund's reserves are still at about 0.4%, and the FDIC board voted Tuesday to keep savings fund premiums at their current range of 23 to 31 basis points. Without quick action by Congress, the current 19-cent disparity between bank and thrift premiums will widen to 23 cents next year. FDIC board member Jonathan Fiechter, acting director of the Office of Thrift Supervision, said the bigger premium gap "creates some incentives that are pretty unproductive" - causing thrifts to try to move deposits into BIF- insured affiliates. Mr. Fiechter, while he joined in the unanimous vote for a bank fund premium cut, also said that hewing too closely to the 1.25% target will mean more volatility in premiums - with rates going up precisely when times are toughest for banks. FDIC director and Comptroller of the Currency Eugene A. Ludwig echoed this concern, adding that he found it "odd" for an insurance system to charge no premiums to most of its members. Ms. Helfer said she too is worried about premium volatility, but that the law didn't give the FDIC much choice. And she rejected Mr. Ludwig's argument that banks are getting free insurance. Banks have "prepaid" their insurance with high premiums in recent years, she said. "Therefore I do not think it's appropriate to characterize this as a zero premium." Newly chartered banks that have not contributed to the insurance fund will get a freebie of sorts, Ms. Helfer acknowledged. But FDIC staffers are looking into a way to end this unintended bonanza via regulation. FDIC staffers said they did not propose lowering all banks' premiums to zero, because the FDIC Improvement Act of 1991 requires a risk-based premium system in which riskier institutions pay more than safer ones. The average insurance premium paid by banks this quarter was 4.4 basis points. The previous all-time low was 3.13 basis points, in 1962 and 1963. Because of the $2,000 minimum, banks with deposits of $5 million or less won't save a cent.

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