WASHINGTON - With comments due today, small banks around the country are flooding the government with letters endorsing a proposed 83% cut in their deposit insurance premiums.

Few of the 1,600 letters filed with the Federal Deposit Insurance Corp. so far are from large banks, which typically submit their responses at the last minute.

On Jan. 31, the agency announced its plans to reduce Bank Insurance Fund premiums to 4#1/2 cents from 23 cents per $100 of deposits for the second half of 1995. The FDIC said it plans to leave thrift premiums at the 23- cent level.

While big banks often offer dispassionate analysis of every aspect of an agency proposal, community bankers speak briefly and from the heart.

"I thought I truly must be dreaming when I heard that the FDIC had proposed a new average premium rate of 4#1/2 cents," wrote Donna Perine, president and chief executive of Farmers and Merchants Bank, a $15.2 million-asset institution in Harrisville, W. Va. "Please don't pinch me and wake me up if it really is only a dream."

The letters show virtually unanimous support for reducing bank premiums and strong opposition to any use of banks' money to help the thrift industry, whether through a merger of BIF and the Savings Association Insurance Fund or otherwise.

For small banks, the issue is fairness. Banks replenished the bank fund on their own and deserve a premium reduction, they argued. Thrifts should bear the cost of recapitalizing the thrift fund and retiring the government bonds issued to finance the S&L bailout.

"Not one thin dime of taxpayer money went to restore the BIF," wrote Robert E. Sorem, chairman and chief executive of Sylvan State Bank in Sylvan Grove, Kan. "There is no moral or legal reason bank assessments should go to meet SAIF requirements or Fico bond retirement."

Many letters emphasized the benefits the premium reduction would bring to communities.

"For the year ended 1994, Apollo Trust Co. paid $202,208.58 in premiums," wrote Helen J. Clark, president of the Apollo, Pa., bank. The reduction would mean "an increase to net income of $77,978, some of which can be reinvested into the community."

Letters from thrifts warned that lowering bank fund premiums without reducing thrift premiums would confer an unfair competitive advantage on banks.

"Commercial banks can be expected to react to lower FDIC premiums by raising deposit rates and cutting loan fees - forcing thrifts with higher premiums to match bank rates, hurting their profitability and ability to compete," wrote Joseph C. Scully, chairman of St. Paul Bancorp, a Chicago thrift company.

Some small banks suggested that the FDIC ease the thrifts' pain by reducing their premiums to 18 basis points, transferring unused Resolution Trust Corp. funds to SAIF, and using "Oakar-Sasser" premiums for Fico bond payments.

"Current SAIF members did not cause the prior SAIF fund losses and, therefore, should not be subjected to an unfair burden of total fund recapitalization," wrote David Ballweg, president of Community State Bank in Union Grove, Wis.

Mr. Cahill writes for Medill News Service

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