The collapse of 885 banks with total assets of $153 billion has cost the federal deposit insurance fund $426 billion over the past five years, the Federal Deposit Insurance Corp. has reported.

As a result, the FDIC is insolvent. That insolvency was to the tune of a minus $7 billion at yearend 1991.

And that's not the worst of it. The FDIC expects that banks with assets totaling more than $160 billion will fail over the next year and a half.

Thinking members of Congress and the FDIC's board of directors are rightly concerned about the condition of the Bank Insurance Fund. Another taxpayer bailout is not pleasant to contemplate.

Higher Insurance Premiums

This has created enormous political pressure on the FDIC to increase deposit insurance premiums.

As a result, the FDIC proposed increasing deposit insurance premiums for banks and thrifts to 28 basis points from 23 -- and as much as 31 basis points when adjusted for risk.

A recent study of the deposit insurance system by the Financial Research Institute demonstrates the enormity of the federal tax imposed by the system on financial institutions.

Banks and thrifts are now paying deposit insurance premiums equal to four-fifths of their total federal tax burden.

In Truth, a Tax

The 22% increase in the premium (read |tax') rate proposed by the FDIC would increase the insurance premium cost to a level that could exceed that of all other federal taxation.

If this were not sufficient reason for concern, the FDIC's rationale for justifying the increases is even more alarming for its candor.

The FDIC forecast that "the SAIF (Savings Association Insurance Fund) balance will be negative for several years following the assumption of resolution responsibility in October 1993." Starting at that time and continuing for two years, the FDIC has forecast that the savings insurance fund will have to deal with failed institutions having assets totaling more than $60 billion.

Admission of Failure

If these projections are credibly founded, the represent an admission that the FDIC and the Office of Thrift Supervision have failed to meet the mandate of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.

That mandate was clean up the thrift industry mess and establish a savings insurance fund that had a members viable, well-managed, healthy thrift institutions.

The FDIC also projects that the Bank Insurance Fund will have to deal with failed banks with assets totaling $300 billion by 1997. That projection, if credible, is in itself sufficiently scary to warrant consideration of an increase in premiums.

But there is no plan for cleaning up a mess of such magnitude, and there is no timetable.

Instead, bankers are being told they will be forced to dump higher premiums into a black hole. This is the good-money-after-bad syndrome that led to catastrophic losses in the past.

Of course, it's possible the FDIC's projections will be rejected. This might happen if the regulators are seen as successfully cleaning up the mess and if the recent legislation is seen as having the desired effect. (However, this would also bring into question the need for high premiums.)

Further, all of these forecasts suggest that the administration and the Congress failed in the 1989 and 1991 reform acts to protect the taxpayer from risk and ensure the banking system's viability.

Beyond the Quick Fix

It is time for regulators, the administration, and Congress to stand back, take a break from the electoral concerns, and think for a moment about the realities of their quick-fix prescription. They should ponder whether or not:

* Premiums are premiums in the true sense of insurance (we think not), or whether they are something more akin to user fees, which by definition defines them as taxes.

* The enormity of these taxes (our mind is made up that that's what they are) has debilitating competitive impact on depository institutions.

* An effort must be made to separate the losses of failed and failing banks from the needs of healthy banks, as was done in large measure by FIRREA.

The government must face the task of mandating a specific timetable and plan for the clean-up of the banking industry, and, if necessary, further identify and resolve thrift institutions cases.

Finally, the government must decide if it's now necessary to broaden the deposit insurance tax-revenue base beyond banks and thrifts to include other providers of financial services.

This would be a way to minimize the debilitating competitive effects of an increase in the insurance premiums on depository institutions. Mr. Jacobe is a managing director of the Financial Research Institute, a bank and thrift consulting firm based in Washington, D.C.

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