House Banking Committee Chairman Jim Leach wants to know more about the government's authority to charge banks and thrifts fees for switching deposit insurance funds.
The Iowa Republican - whose support is key to passage of any legislation shoring up the Savings Association Insurance Fund - has asked the Federal Deposit Insurance Corp. to investigate its power to impose charges on institutions that want to leave one fund for the other.
Because they soon will be paying insurance premiums that are five times as high as bank rates, thrifts are looking for ways to shift deposits from the thrift fund to the Bank Insurance Fund.
The FDIC is still working on its response to Rep. Leach, but rooting through recent banking bills the FDIC turned up something interesting.
In addition to the well-known authority to charge entrance and exit fees, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 gives the agency the power to impose fees on newcomers to an insurance fund.
Section 206 of the thrift-bailout law states: "Any institution that becomes insured by the corporation ... shall pay the corporation any fee which the corporation may, by regulation, prescribe after giving due consideration to the need to establish and maintain reserve ratios in the Bank Insurance Fund and the Savings Association Insurance Fund."
The FDIC has no such regulation on its books today, and it would take months to issue a proposal, collect comments, and finalize new rules.
But the finding is enticing, and much broader than the FDIC's existing authority to levy exit and entrance fees on institutions that switch funds.
With the power to impose fees on newly insured institutions, the FDIC could make it a lot more expensive for thrifts that want to escape high insurance premiums by chartering banks and siphoning deposits from the thrift fund to the bank fund.
Entrance fees are designed to prevent dilution of the fund that is receiving new members. Exit fees are supposed to be paid to compensate the fund left behind for its loss of premium revenue.
But while Congress came up with the exit/entrance fee idea in 1989, it also slapped a moratorium on institutions moving from one fund to the other.
There are two exceptions to the moratorium: the acquisition of failing institutions and the purchase of healthy-institution branches that control no more than 35% of the institution's deposits.
Until the thrift fund holds $1.25 for every $100 of deposits it insures, its members are forbidden to leave. (The FDIC estimates that the fund won't hit its reserve target until at least 2002).
The fund-switching fees have generated just $209 million, with all but $6 million earned as an exit fee paid to the thrift fund.
Interestingly, that $203 million is kept separate from general thrift- fund reserves and could be used to pay the interest on Financing Corp. bonds.
If the Treasury secretary determines that Fico has exhausted all other sources of funding, he can instruct the FDIC to use the exit fees to make the payments.
However, at $203 million, the exit fees make up less than a third of Fico's annual interest tab.
Until 1997, exit fees from the thrift fund to the bank fund are set jointly by the FDIC and the Treasury Department. Right now, the exit fee from the thrift fund is 90 basis points, which is levied against the value of the deposits moved. The entrance fee into the bank fund is 89 basis points.
That puts the cost of moving at 179 basis points - or nearly eight years' worth of the average 23-cent thrift premium.