Risky institutions that pay nothing for deposit insurance - beware.

In the two months since she unveiled an ambitious plan to question every aspect of the government's guarantee, Federal Deposit Insurance Corp. Chairman Donna Tanoue is starting to draw some conclusions.

First, there is no way that 9,500 banks and thrifts should get deposit insurance for free. Those with wild growth or reckless lending - "institutions furthest out on the risk curve" - are more likely to cost the FDIC money and should be paying their fair share now, Ms. Tanoue said last week.

In a speech at a Federal Reserve Bank of Chicago conference, she pledged to "take a good, hard look" at these institutions, "especially those whose performance looks too good to be true."

Ms. Tanoue reminded her audience that a rash of bank failures last year produced the first annual loss in the Bank Insurance Fund since 1991. Then she dropped a bombshell: "The banks that accounted for most of that loss were not paying premiums two years or less prior to their failures."

Though she wasn't this blunt, her message was clear: If a bank less than two years from failure is not paying for deposit insurance, something is wrong. The FDIC wants to refine its pricing policies, she said, by making better use of market signals, financial reports, and data generated by examiners.

The FDIC could piggyback on regulators' broader effort to harness market discipline - for, example by watching how much investors are willing to pay for a bank's subordinated debt. The agency also could "enter into risk-sharing arrangements with market participants," Ms. Tanoue said.

"It is not unreasonable to suppose that contracts could be developed that allow the FDIC to transfer - and price in a competitive market - a portion of risks faced the insurance funds," she said. As she has hinted before, Ms. Tanoue said the FDIC may use such market data to develop a two-tier pricing structure for large and small institutions. "There is no hard-and-fast constraint that requires the FDIC to maintain a one-size-fits-all approach to pricing deposit insurance," she said.

The FDIC already uses bank financial reports to identify riskier institutions, flagging for further review roughly 400 institutions that currently pay nothing for coverage. "The screens used include financial ratios that can be indicative of a high-risk appetite, such as concentrations, growth, high asset yields and the like," she said.

And finally, the data mined by examiners about a bank's risk appetites, risk exposures, and risk management practices could be used to better price deposit insurance, she said.

The FDIC is expected to propose options in July. The agency already has the power to raise premiums on all institutions if the fund's reserves fall below $1.25 for every $100 of insured deposits. Ms. Tanoue the prospect of a decline below 1.25% "is by no means as remote as one might think."

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