To the Editor:
After the Federal Deposit Insurance Corp. board voted to reduce premiums paid by the healthiest members of the Bank Insurance Fund (over 90% of the banking industry) to 4 cents per $100 of domestic deposits, a few bankers and a trade group complained that even 4 cents is too much.
Regrettably, an American Banker news analysis that followed ("FDIC Pinned New Bank Premiums on Some Odd Forecasts," Aug. 22, page 2) was unbalanced, selectively reported, and contained errors of fact.
The article said the FDIC relied on two "key assumptions" to justify its action: that bank fund-insured deposits would grow as much as 6% a year and that insurance losses and additions to the reserve for future losses could total $600 million in the second half of 1995.
The article failed to explain that these figures were the upper endpoints of ranges considered by the FDIC board. These ranges were from zero to 6% growth in insured deposits, and from a $600 million insurance loss to a $200 million recovery. The extremes of these ranges are possible, but not likely.
Other points need correcting:
*The $100 million forecast of failed-bank assets for the second half of 1995 refers to the Savings Association Insurance Fund, not the bank fund as stated in the article.
*The FDIC board considered scenarios in which the Bank Insurance Fund reserve ratio ranges from 1.24% to 1.36% of insured deposits by the end of 1995. This, as noted before, is a range, not a prediction. The upper endpoint was not 1.31% as stated in the article.
*In incorrectly suggesting that FDIC operating expenses are soaring, the article failed to account for the recent substantial decreases in actual expenses. The agency's total staff, 15,044 at yearend 1992, will be under 10,000 by the end of 1995 and significantly lower by the end of 1996. Total operating expenses during 1995 have, in fact, been running 8% to 10% less than budgeted amounts. This information was provided to the public at the same board meeting that took up the BIF premium issue.
The analytical basis for the final rule establishing the new premium schedule was set out in the Aug. 16 Federal Register. Readers who want to obtain additional facts or answers to any other questions may write to us directly at 550 17th St. NW, Washington, D.C. 20429.
William A. Longbrake
Deputy to the FDIC chairman for financial policy
Washington
