WASHINGTON - What was the Federal Deposit Insurance Corp. thinking when it decided this month to drop its rates to 4 cents for every $100 of domestic deposits?

One key assumption is that deposits will increase as much as 6% a year - a gutsy prediction, considering that deposit growth has been flat since 1990.

The FDIC also predicted bank failures in the second half of the year could require a $600 million addition to its reserves. That would mean banks with about $4 billion in assets would have to fail before yearend. That simply does not square with the agency's decision in July to pare its forecast of failed bank assets by 97% to $100 million.

Regardless of their accuracy, the two estimates help the FDIC justify charging an average of 4.4 cents - a rate critics claim is too high.

When the FDIC voted Aug. 8 to slash its premium by 83% for the best banks, it cut the industry's expenses by $4.5 billion a year. Though thrilled with the reduction, the American Bankers Association and others have been arguing that the FDIC should not collect any premiums in the second half of 1995.

"It is wholly inappropriate to take one extra dime out of banks and their communities," said James A. Chessen, ABA's chief economist. "They don't need to raise hundreds of millions of dollars more than is necessary."

The FDIC has acknowledged that by yearend the bank fund may balloon to as much as $1.31 for every $100 of insured deposits, or $1.4 billion more than Congress requires the bank fund to hold.

By assuming deposits will grow, the FDIC can claim the bank fund will need more money to reach its required reserve level.

The FDIC maintains that deposits have not grown much in the 1990s because insurance premiums have been so high. As rates come down, deposits will grow again, explained the FDIC's research director, Roger Watson, at the agency's Aug. 8 meeting.

But Bert Ely, an industry analyst who has successfully challenged the FDIC's assumptions in the past, said the 6% figure is unrealistic.

"Deposit growth will pick back up, but I don't think it will go to 6%," he said. "I think it will go to 3%."

Mr. Ely also takes exception to the FDIC's loss estimates.

Money set aside to cover losses is kept separate from the bank fund's general reserves, and is not factored in when the FDIC measures the size of the fund. So the higher the loss estimate, the more money the fund needs to hit 1.25%.

"They clearly are way too pessimistic," Mr. Ely said.

The FDIC made a third assumption that both Mr. Ely and Mr. Chessen questioned. Even with a dwindling workload, the FDIC predicted that its operating costs will soar 19% to $504 million this year.

Mr. Chessen said the ABA wants the agency to set its rates on the basis of expected expenses over the next six months. But FDIC officials insist the agency must take a longer view.

"The board believes that its insurance responsibilities require it to look beyond the immediate time frame in setting assessment rates," the FDIC's final rule on premium rates reads. "The probability and likely amount of losses and case resolution expenses are determined by risk factors that operate over a far longer horizon than six months."

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