FDIC Plans Another Rise In Premium, Taylor Says

WASHINGTON - William Taylor, the new chairman of the Federal Deposit Insurance Corp., says the agency plans to raise its premium again in July, the fourth increase since January 1990.

He would not be specific on what that increase would be, but he suggested that a premium of 30 cents per $100 of insured deposits - 7 cents above the current rate - was viewed as a ceiling.

"I think you get much above 30 basis points and you've got a lot of trouble on your hands," he said last week. "At some point [premium increases] become very counterproductive to the solution and you end up taxing the dead."

In his first interview since taking office last month, Mr. Taylor also outlined a number of ambitious goals for himself and the agency. Among them:

* Annual on-site examinations for banks.

* Closing banks before they fail, perhaps with installation of new management by the FDIC.

* More intense scrutiny of megamergers before and after the deals are completed.

Mr. Taylor said he needs the premium hike not only because the fund's reserve is so low, but because the number of troubled banks is increasing.

"The problem number will go up before it goes down," he said. "I don't think things have bottomed out yet."

As of Oct. 31, the assets held by the 1,063 banks the FDIC considers in danger of failing hit $483 billion, up from 1,033 banks with $414 billion on June 30.

Needs $70 billion

The FDIC chief was also emphatic about the urgency for Congress to pass some kind of FDIC funding package. "It is absolutely critical," he said.

Of the $70 billion in anticipated funding, $30 billion will pay for nonrecoverable losses at failed banks. The $45 billion balance is supposed to be recouped by selling assets seized from failed banks.

Is the $30 billion enough? The question causes Mr. Taylor to sputter with exasperation.

"No, I'm not comfortable with 30. I'm not comfortable with 20. I'm not comfortable with 40. This is a kind of silliness in a way. I mean, |I don't know' is the answer. That is an honest, straightforward answer."

The New View

The view from the window to the right of Mr. Taylor's new desk is magnificent panorama starring the Washington Monument.

"The job is as big as the view," he said.

It is also more or less a high-wire act without much of a safety net to catch him if he falls.

Inaction on Capitol Hill could bring the FDIC close to paralysis.

Mr. Taylor, the son of a rugged coal miner from Scotland, isn't intimidated. As a young employee of Chicago's Upper Avenue Bank in the late 1960s, he would stuff thousands of dollars in his pockets, climb out on the 100-story-high beams of the then-unfinished Hancock Tower, and offer to cash the checks of steelworkers who'd open an account with his bank.

A Changed Man

Mr. Taylor gave up a secure job at the Federal Reserve, as head of bank supervision, for his new post. He also gave up a salary of $150,000 for a new one of $115,000.

Mr. Taylor claims to be leaving some mental baggage behind, as well.

"I used to say that there ought to be one banking agency and it ought to be the Fed," Mr. Taylor told a dinner audience in Chicago last week. "I still agree that there should be agency consolidation, but I'm rethinking the second part."

Early Intervention Planned

One way out of the industry's current morass, Mr. Taylor said, is resolving troubled banks before they become disasters - even if that means the FDIC takes over a troubled institution, hires its own managers to fix it, and then sells it.

"The government is wiser to make that investment than it is to liquidate that bank because it is liquidating franchise value," he explained.

He would prefer enticing a neighboring, healthy bank to take over a faltering institution. Shareholders would be wiped out at the troubled bank, of course, and the acquirer would get FDIC cash to cover a negotiated amount of future losses.

And he'd like all the assets to stay with the new institution.

"When you rip these assets out, you've interrupted lines of communication and collection; and that causes depreciation in the assets that really isn't necessary," Mr. Taylor said.

If it costs the FDIC 6% of a bank's assets to recapitalize - the minimum capital required - but 25% of its assets to liquidate, the agency comes out ahead with recapitalization, in Mr. Taylor's way of thinking.

Annual Examinations

Mr. Taylor said he wants regulators to ward off future problems by taking a more proactive approach, including annual full-blown, on-site exams.

"I think if we go in every year to every bank, we're better off," he said. While off-site monitoring is helpful, Mr. Taylor said he wants examiners to see for themselves if a bank is following the policies it says it is.

Regulators also have to spot and stop damaging business trends in the industry sooner than they have been, Mr. Taylor said. He named consumer credit as the banking industry's next possible problem.

"I think we have to put ourselves in front of the truck a little quicker."

Another of Mr. Taylor's lofty goals is to scrutinize mergers between big banks much more carefully, to avoid mistakes that could cost the fund billions of dollars down the road.

"You have to make sure you understand them in depth before [approval] and follow up as soon as they are done," he said. "A big merger is like open-heart surgery: It's good to keep an eye on the patient after it happens."

As for the industry's current nemesis, real estate, Mr. Taylor agrees with his predecessor that regulators ought to set some new underwriting standards for banks, including minimum equity investments by borrowers.

Mr. Taylor has a reputation as a strict regulator. He has been preparing for this job since the early 1960s, when he began his career at the Federal Reserve Bank of Chicago as an examiner.

Mr. Taylor's stint at Upper Avenue was followed by a run through real estate developer Rouse & Co. He rejoined the Fed, this time in Washington, in 1976 to untangle the Real Estate Investment Trust mess.

At the Fed, Mr. Taylor worked his way up through the division of bank supervision, becoming director in 1985, the post he held before coming to the FDIC.

Mr. Taylor is practical, blunt, and hardworking. But he manages to mix humor into most conversations.

Keeping a Low Profile

Talking about tracking pending legislation, Mr. Taylor said: "I've seen so many bills, it seems like the first of the month all the time."

While Mr. Taylor is as candid as his predecessor, he plans to be a less visible FDIC chairman than L. William Seidman, who was often seen on Sunday morning talking shows and regularly read in national newspapers.

"I'm not going to hide," Mr. Taylor said, "but I don't go running around."

Relations among the banking agencies are likely to be a lot smoother under Mr. Taylor as well. He said Mr. Seidman's plan to gain for the FDIC the power to set capital minimums for all banks, something that infuriated the Comptroller of the Currency, goes too far.

He added: "The FDIC should get back-up authority [to examine all insured banks], which should be used very judiciously."

Mr. Taylor will need all the ingenuity he displayed in his days at Upper Avenue bank to lead the FDIC out of its darkest days. And he needs to hurry. His term expires in February 1993.

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