WASHINGTON - Taking stock of the changes that have swept through banking in the last five years, the Federal Deposit Insurance Corp. is considering other ways of assessing deposit insurance premiums.
Domestic deposits have served as the base for calculating how much each bank owes since 1933, when deposit insurance was created.
The FDIC is currently focused on the more basic question of how much banks and thrifts should be charged for insurance. Right now, the average rate is 23 cents for every $100 of domestic deposits. In January, the FDIC proposed dropping the rate most banks pay to 4 cents. A final decision is slated for next month.
Still, the agency did issue an advance notice of proposed rulemaking, seeking input on changes to the assessment base. More than 500 banks, thrifts, and others replied.
Citibank told the FDIC to leave the assessment base alone while the industry tries to adjust to the FDIC Improvement Act, interstate banking and branching laws, potential Glass-Steagall repeal, and the coming deposit insurance rate cuts.
"Because changes in the assessment base should be durable, only those of limited impact should be considered in such a turbulent environment," wrote Citibank's assistant secretary, Michael L. Kadish. "This is not the time to make significant changes in the base."
However, the nation's second-largest bank, Bank of America, argued against changes, called the status quo "inherently unfair."
The current system "directly inhibits institutions' ability to innovate and keep up with changes in the marketplace," wrote Raymond R. Peters, B of A's executive vice president. It is "poor economics and poor public policy."
The most radical proposal came from Mellon Bank, which suggested switching the base to assets from domestic deposits.
"This approach would eliminate the current disadvantages to retail- oriented banks which generate minimal risk on the asset side of the balance sheet," wrote Steven G. Elliott, vice chairman and chief financial officer at the Pittsburgh-based bank.
To back up his position, Mr. Elliott noted that the industry's largest losses have come from international lending, highly leveraged loans, and real estate finance. "Insurance premiums should be based on risk-based assets, because the threat to the FDIC insurance fund clearly comes from the assets," he wrote.
It was in October that the FDIC asked what, if any, changes should be made to the assessment base. While the agency plans to carefully study the industry's comments, submitted in February, officials said dramatic changes are unlikely anytime soon.
However, technical changes are possible in the short run.
The FDIC is expected to eventually calculate a bank's assessment base by collecting a daily average rather than using end-of-quarter figures. The agency is worried that some banks are manipulating the size of their assessment base by moving deposits out at the end of a quarter.
Most banks welcomed this change, including Citibank, B of A, Crestar, Sumitomo, State Street, CoreStates, and CalFed.
"There would be no record-keeping burden as this data is already available," noted Michael P. Esposito Jr., who recently retired from Chase Manhattan Corp. as an executive vice president.
But some banks opposed it, including Barnett Banks Inc., NationsBank, and Wells Fargo.
"While daily averages for some balances would be readily available, obtaining daily averages for certain adjustments in the deposit base would be extremely burdensome and costly," wrote NationsBank's director of regulatory relations, Patrick M. Frawley.
The FDIC also may opt to eliminate the current float adjustments, which allow banks to subtract 16#2/3% of demand deposits and 1% of savings and time deposits. The float is used to avoid double-counting; however, advances in technology in the 30 years since these adjustments were set may have made them obsolete.
Some bankers who wrote the agency favored using actual float.
"The advantage of using actual float would be an assessment that more accurately reflects the individual institutions' net deposits," noted Patrick D. Giblin, vice chairman and chief financial officer at Crestar Financial Corp., Richmond, Va.
Adjustments for bank insurance contracts and pass-through reserve balances also may be removed.
However, most comment letters, including ones from State Street Boston Corp., Wells Fargo, NationsBank, and several trade associations, opposed changing the float.
"While float deductions in theory should be related to actual experience, the regulatory burden of justifying such argues in favor of a standard deduction," wrote Nancy J. Kessler, director of regulator relations at Barnett Banks in Jacksonville, Fla.
Not surprisingly, in comment letters banks took positions that would cut their deposit insurance costs.
Large banks advocating a change generally argued that the base should be narrowed to domestic deposits under $100,000. Many small banks asked the FDIC to widen the base to all deposits, including foreign deposits.