The cost of bailing out the savings-and-loan industry is about to grow steeper for banks-and cheaper for thrifts.
Thrifts today pay five times as much as banks per insured dollar to cover the $8.1 billion in Financing Corp. bonds sold from 1987 to 1989. That ratio has been in place since 1997, the year after lawmakers approved a new bailout regimen.
The disparity will end Jan. 1. Barring any changes in the law, banks and thrifts will pay equal rates through 2019, when the last of the 30-year Financing Corp., or Fico, bonds mature. Annual interest payments equal $793 million.
The Federal Deposit Insurance Corp. confirmed the rate change last week when it approved a revised memorandum of understanding with the Financing Corp.
Under the new setup the average bank will pay about 2.16 cents per $100 of insured deposits, versus 1.16 cents now. The change will add $50,000 to the annual tab of a bank with $500 million of deposits protected by the Savings Association Insurance Fund.
The average thrift will also pay 2.16 cents per $100 of insured deposits next year, down from roughly 5.8 cents today. For a thrift with $500 million of deposits guarded by the Savings Association Insurance Fund, the change will cut its annual assessment by about $180,000.
The idea of sharing responsibility for the collapse of the savings-and- loan industry did not sit well with many bankers in the early 1990s. Why, they asked, should we bear the burden for a problem we did not cause?
After many months of negotiations, however, the bank and thrift industries came to agreement, leading to the enactment of a new thrift bailout law in late 1996.
Under the law, thrifts paid a one-time special assessment of $4.5 billion to capitalize the thrift fund. The cash infusion raised the fund's balance to 1.25% of insured deposits.
The 1996 law also required banks to begin chipping in for interest payments on the Fico bonds. Through Dec. 31, 1999-or until the thrift charter was eliminated, whichever came first-banks were to pay one-fifth of what thrifts did per insured dollar.
After that time the assessment rates would become identical, and stay that way until 2019.
The banking industry's willingness to settle with the thrift industry was partly borne out of enlightened self-interest.
Though the grossly undercapitalized thrift fund was technically not "their" fund, recapitalizing it would presumably boost public confidence in all insured depositories, including banks.
Banks also hoped that the promise of an early release from the assessment disparity might persuade the thrifts to abandon their charter. It has not.
The issue of Fico assessment rates came up again this year in the financial reform package.
A provision in the bill approved by Senate Banking would have frozen the 5-to-1 Fico rate disparity between banks and thrifts for an additional three years.
According to a Capitol Hill source, committee members supported the measure for two reasons. First, it was a clearcut "give" to the banking industry amid the give-and-take that is common in such a massive legislative undertaking. Second, it might prod the thrift industry to finally abandon its charter.
In the end Senate Banking Chairman Phil Gramm withdrew the idea. Banks, it turned out, were more interested in restricting ownership of unitary thrifts than in reaping cost savings from the freeze.
One reason: Banks now own nearly 40% of all deposits insured by the thrift fund. For some institutions the rate equalization would be a wash.