The Federal Deposit Insurance Corp. on Tuesday freed virtually all banks and thrifts from paying deposit insurance premiums for the first half of 1999.

Despite growing concern about loan underwriting standards and the global economy, the FDIC's board concurred with agency staff that investment income from the insurance funds' reserves would outstrip failure-related losses during the period.

As a result, the board voted unanimously to maintain the existing rates, which range from 0 to 27 cents per $100 in insured deposits. Only 577 of 10,739 FDIC-insured institutions paid premiums for the second half of 1998.

Fred S. Carns, the FDIC's assistant director for insurance, estimated that even without a rate increase, the Bank Insurance Fund's reserve ratio would reach between 1.38% and 1.44% by June 30. He predicted that the Savings Association Insurance Fund's ratio would hit 1.24% to 1.29% by midyear, even though the FDIC is required by law to remove all SAIF reserves above 1.25% on Jan. 1 and place the excess in a special account.

The FDIC board also proposed a "know-your customer" rule aimed at helping banks spot illegal customer activity such as money laundering. But several board members expressed concern about the potential burden on community banks.

FDIC Vice Chairman Andrew C. Hove Jr. said the requirements could be "brutal" on small lenders. The former Nebraska community banker said that bankers serving small towns know their customers well and do not need government-imposed rules.

"A lot of people you already know, you saw them grow up, you go to church with them," Mr. Hove said. The FDIC, he said, should address the know-your-customer issue in a less formal policy statement because doing so would give regulators more discretion to exempt small banks.

But Ellen Seidman, director of the Office of Thrift Supervision, warned that if the FDIC issued a policy statement while other bank regulators were issuing hard-and-fast rules, "crooks could migrate" to FDIC-supervised banks. The FDIC set a 90-day public comment period for its proposal.

The Federal Reserve Board and the Office of the Comptroller of the Currency issued similar know-your-customer proposals earlier this month.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.