Imagine: the failure of $500 billion in banking assets; the Bank Insurance Fund in the red for seven years; banks paying 28-cent premiums through 1997.

That's the snapshot the Federal Deposit Insurance Corp. took of the banking industry in mid-1992.

What really happened?

Just 10% of the assets predicted to fail actually tanked. Three record- setting years of bank earnings fueled recapitalization of the insurance fund in May 1995 - 11 years ahead of schedule. More than 90% of all banks pay no insurance premiums.

As former FDIC chairman L. William Seidman liked to say: People who gaze into crystal balls often end up chewing glass.

Today, those shards are making it tough for FDIC prognosticators to raise any red flags. But the agency's executives are paid to worry about the long haul, and if they can't make the case for caution, they may simply change the way premiums are levied.

The groundwork was laid in November when the FDIC decided to charge between zero and 27 cents for every $100 of domestic deposits, depending on how much risk a bank poses the fund. The best banks simply pay the statutory minimum of $2,000 a year for insurance; as of Jan. 1, that's more than 9,700 banks, holding 95% of the industry's assets.

It's hard to claim that rates are risk-based - as required by law - when so many banks are not paying premiums.

The agency's November analysis of the premium cut included two charts. The first shows that 35% of the banks failing between 1980 and 1994 held Camel 1 or 2 ratings two years before closing; 55% held one of the two highest ratings three years before failing.

The second chart notes that regulators judged 80% of the banks that failed between 1987 and 1994 to be well capitalized just three years before they closed.

The FDIC was trying to illustrate a point: Good banks can die quickly. Agency officials are concerned about classifying so many banks as the best in the business.

"All of the institutions in the A-1 category are not equal," Roger Watson, the FDIC's research director, said in an interview last week.

Mr. Watson acknowledged he has "been fooling around with various and sundry analyses to see what makes more sense than what we have now.

"Expanding the matrix eventually probably will make sense," he said. "It will take some time to convince people."

The matrix is a nine-box grid the FDIC uses to determine how much each bank will be charged for insurance. One axis plots a bank's capital, the other its supervisory rating. The 9,723 banks that qualified for zero premiums are in the A-1 box at the top left of the grid. They are well capitalized and have a high Camel rating.

But Mr. Watson noted that these factors judge a bank's past - not its future.

"You can't look at any bank today and judge it solely by its Camel rating and capital," he said. "There are many other factors.

"The real trick is to look for leading indicators of problems."

The FDIC is leaning toward adding another dimension to the matrix - possibly a bank's debt ratings or trends in its operating characteristics, such as earnings or problem assets - rather than simply adding more boxes.

"We're trying to come to grips with a comprehensive and reasonable approach to measuring risks in banks," Mr. Watson said. "That makes more sense than tinkering around the edges."s

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