WASHINGTON - A long-awaited government report warns that savings institutions face increased insurance premiums in five years if problems stemming from the expected drop in bank rates are not addressed.

Reacting, Senate Banking Committee Chairman Alfonse M. D'Amato and Rep. John LaFalce, D-N.Y., demanded that the Federal Deposit Insurance Corp. act to help the thrift industry.

"It is incumbent on the FDIC to move quickly," said Rep. LaFalce, who joined Sen. D'Amato in releasing the General Accounting Office report. "Otherwise, Congress will proceed independently."

The congressional watchdog agency said banks would raise deposit rates and cut loan costs when their insurance premiums drop later this year. The thrift industry would then be forced to match banks to remain competitive, and it would take hits to earnings of up to 5.8%.

The agency also warned of a shrinking base of deposits available to pay off the bonds that were issued in a 1987 effort to rescue the thrift industry.

As a result, thrifts insured by the Savings Association Insurance Fund could face higher insurance premiums by the year 2000.

"It's not hard to imagine a scenario in which the shrinkage of the SAIF fund would cause our premiums to increase from 24 basis points now to 30 basis points by the year 2000," said Paul Schosberg, president of America's Community Bankers, a thrift trade group.

"And the year 2000 is not that far off," he added.

The GAO made no recommendation but listed a number of familiar options, including merging the bank and thrift insurance funds, requiring banks and thrifts to share the cost of the 1987 bonds, and using taxpayer money.

Both Sen. D'Amato and Rep. LaFalce said the use of taxpayer money should be a last resort, but neither ruled it out. Both also said a merger of SAIF with the Bank Insurance Fund should be considered.

"That is an option, and I would not rule it out," said Rep. LaFalce. "It could be the most difficult one politically, but it might be the best one ideally."

Sen. D'Amato said he has no preference among the options but said the FDIC's current policy "is the wrong one."

The FDIC recently agreed to reduce bank premiums later this year to an average of 4 cents for each $100 of domestic deposits, from the current 23 cents. Thrift premiums would remain by law at an average of 24 cents until SAIF has a reserve of $1.25 for each $100 of insured deposits.

The FDIC expects the thrift fund to recapitalize in about seven years.

Bank groups were divided on the meaning of the GAO report. The Independent Bankers Association of America said it shows the SAIF faces serious risks, and the group urged Congress to transfer unused Resolution Trust Corp. money to SAIF.

However, the American Bankers Association minimized the findings and said Congress should do nothing right now.

"In the worst-case scenario, and we think GAO is being unduly pessimistic, nothing will happen until the year 2000," said Edward L. Yingling, chief lobbyist for the ABA.

Moreover, he said, a 5.8% thrift industry profit reduction "would hardly seem to justify having banks pay for SAIF."

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