A Federal Deposit Insurance Corp. plan to penalize thrifts that illegally shift deposits to affiliated banks is not needed, industry leaders told the agency.

The motivation to entice customers to switch accounts-a higher price for insurance on thrift deposits-is gone, according to a majority of the 15 comment letters filed at the FDIC last week.

Holding companies had a powerful economic incentive last year to encourage customers to transfer deposits because thrifts then paid 23 basis points more for deposit insurance than banks. In the thrift fund bailout law enacted Sept. 30, Congress prohibited so-called deposit shifting and required regulators to take "appropriate actions" to prevent it.

But that same law virtually eliminated the difference in premiums between the bank and thrift funds, and set Jan. 1, 1999, as a target date to merge the funds.

"The problem is solved," wrote Larry D. Kurmel, executive director of the California Bankers Association.

Nevertheless, the FDIC in February proposed assessing fines of 90 basis points on deposits that are illegally shifted from the thrift fund and a 100-basis-point fine when they enter the bank fund. An FDIC formula would warn institutions that show abnormal levels of deposit migration compared with the industry average.

Golden West Financial Corp., Oakland, Calif., which early last year shifted deposits from its California thrift to a New Jersey bank, said the FDIC proposal violates the First Amendment by improperly limiting an institution's ability to communicate investment advice to its customers.

The American Bankers Association and America's Community Bankers suggested regular monitoring by the FDIC.

"Adopting a regulation in a situation in which monitoring by FDIC will achieve the same results does not comport with the efforts of FDIC and the Congress to reduce regulatory burden," wrote James D. McLaughlin, ABA's director of regulatory and trust affairs.

Questions were raised whether the FDIC's proposed formula would distinguish between orchestrated deposit shifts and ones that occur in the ordinary course of business. And several groups criticized as "draconian" the size of FDIC's proposed penalties.

The FDIC is expected to make a final proposal this summer.

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