WASHINGTON -- Deposit insurance premiums could be cut in 1998, four years earlier than previously expected, according to new projections by the Federal Deposit Insurance Corp. staff.

An internal document, obtained by the American Banker, forecasts the average bank premium will fall by 15%, to 21 cents for every $ 100 of deposits, in 1998. The rate would plunge another 48%, to 11 cents, the next year. The current average is 24.6 cents.

A |Turning Point'

The projection is not official. But Roger Watson, the FDIC'S research director, said that, if anything the new estimate is too conservative. The FDIC might well be able to reduce the premium even sooner, he said in an interview Thursday.

"We're at a turning point," Mr. Watson said. "There doesn't seem to be that much risk in the system right now, and that will probably last for a few years."

In March, when the last official projection was issued, the FDIC said the current premium would hold until 2002, when it would fall to 13.5 cents.

Mr. Watson presented the new forecast Wednesday to a private-sector group that advises the Savings Association Insurance Fund.

If it holds, the projection will be a bonanza for banks. But thrifts, whose separate insurance fund is in worse shape, are not likely to see a premium cut.

Differential Seen

Mr. Watson said concern over that prompted the SAIF Advisory Board to ask for a briefing on the Bank Insurance Fund. He predicated that down the road the premium rate for thrifts will be at least 12 cents higher than for banks.

"I think people have to start to realize that there is this potential for a big differential," he continued. "Whether it is fair or not is arguable, but it is going to cause a lot of disruption" in the thrift industry.

The FDIC gave a peek at these new projections in late June when it slashed the forecast for failed bank assets for both 1993 and 1994.

On June 24, the FDIC lowered its estimate of the assets in failed banks for this year to $10 billion from $25 billion and to $20 billion from $45 billion for 1994.

Estimates Slashed Further

But the FDIC told only part of its story.

According to the internal figures, the FDIC slashed another $30 billion off estimates for failed bank assets between 1995 through 1998.

The bulk of that total, $20 billion, was lopped off the forecast for 1995, when the FDIC expects to inherit $30 billion in assets from failed banks. In March, the agency said it expected to see $50 billion in bad assets in 1995.

The forecast for failed bank assets is $25 billion in 1996, down from $32 billion; for 1997, it's $20 billion, down from $22 billion; and for 1998, it's $20 billion, up from $19 billion. The estimates for all years from 1999 through 2006 remain unchanged from the March forecast and range between $19 billion and $23 billion a year.

Hitting the Target

Under these conditions, the FDIC expects the Bank Insurance Fund to reach its mandated size of $1.25 for every $100 in domestic deposits in 1998 -- four years earlier than the agency predicted in March.

In 1991, Congress told the FDIC to rebuild the bank fund to 1.25% by 2006. Under the FDIC's latest internal calculations, the fund will reach that target eight years ahead of schedule.

Even with the average premium falling to 11 cents in 1999, the FDIC is predicting BIF will hit 1.32% in 2006. In the March forecast, the FDIC said the fund would grow to 1.25% in 2002 and remain that size through 2006.

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