WASHINGTON - The Federal Deposit Insurance Corp. announced Tuesday that the Bank Insurance Fund will be rebuilt in 1995, but refused to say when premiums will come down.
At an open meeting Tuesday, the agency also announced that it is considering changing die base against which deposit insurance is levied. Since its creation in 1934, the FDIC has used total domestic deposits to figure how much a bank owes.
The rates that banks pay for deposit insurance have hovered around 23 cents per $100 of domestic deposits since July 1991, when the current effort to recapitalize the fund began.
Once the fund reaches its target size of $1.25 for every $100 of insured deposits, the FDIC can reduce the rates banks pay. The FDIC has been predicting that die fund would hit its target in 1996. But at Tuesday's meeting, the FDIC released a report that said: "It appears that the BIF will recapitalize in 1995."
The agency did not say when in 1995, but industry analyst Bert Ely predicted Tuesday that the fund will reach its goal by the end of the first quarter.
While welcoming the good news, all three FDIC board members expressed concern about reducing bank premiums while thrift rates remain high. The Savings Association Insurance Fund is not expected to hit the 1.25% target until 2002, the FDIC said Tuesday. That's two years sooner than the agency's last forecast in May, but still seven years later than the bank fund.
Once banks are paying less for deposit insurance, thrifts will be at a competitive disadvantage.
"I wish the BIF-SAIF issue weren't an issue," said acting FDIC Chairman Andrew C. Hove Jr. "But it is an issue that we will have to address."
Congress is expected to confront the rate differential between banks and thrifts next year. One option is to merge the two funds, using the larger bank fund to bolster the thrift fund. But the banking industry is solidly against that idea.
Two other options to boost SAIF, according to the FDIC staff report, include using leftover Resolution Trust Corp. funds or drawing on FDIC's $30 billion line of credit with Treasury.
James Chessen, chief economist at the American Bankers Association, downplayed the problems caused by a rate disparity Tuesday.
"It's hard for me to believe that a 15 basis points rate differential is going to drive these surviving thrifts into the dirt," he said.
For the third time in a year, the FDIC whacked the amount of failed bank assets it expects to handle over the next five years. This is one reason the bank fund's prospects are brighter.
The current projection is $30 billion in failed bank assets by the end of 1998.
That's less than the $57 billion forecast in March and just a fraction of the $177 billion projected in September 1993.
While the premium reduction is the most important issue in the short run, the FDIC launched a longer-range project Tuesday that could result in massive changes to the way deposit insurance prices are calculated.
The agency is asking for input into a proposal that may change the assessment base from domestic deposits.
Al Long, an FDIC assistant director, said the agency has not decided the best route to take but wants input on a range of possibilities, including basing the assessments on assets. Interested parties have four months to comment.