WASHINGTON - Federal regulators objected Thursday to legislation that would prevent the Federal Deposit Insurance Corp. from building its reserves without limit.

FDIC Chairman Ricki Helfer told the House Banking Committee's financial institutions subcommittee that the bill would interfere with the agency's risk-based premium system, which charges weaker banks higher insurance rates.

Even those institutions "in unsafe or unsound condition or involved in strategies likely to lead to losses to the insurance fund would be relieved of the requirement to pay insurance premiums if the fund were at or above its designated reserve ratio," she said.

The House Banking panel voted Tuesday to approve the legislation constraining the agency's authority to fatten the fund.

Currently, an insurance fund is considered adequately capitalized when it holds $1.25 for every $100 of deposits insured. Although the Bank Insurance Fund hit the 1.25% ratio in May, the FDIC is still collecting premiums and pushing the ratio higher.

Treasury Under Secretary John D. Hawke Jr. said banks need incentives, such as lower insurance premiums, to control risk. If the FDIC were forced to eliminate premiums, there would be no such incentive, he said.

"We are troubled by the rigid limit on reserve levels," he said. "This would effectively undermine the FDIC's statutory mandate to assess institutions based on the risks they pose to the insurance fund."

Rep. Marge Roukema, the panel's chairwoman, disagreed. "It is my belief that this provision simply clarifies present law," she said.

Mr. Hawke also said requiring FDIC to rebate excess premiums would create a "pay-as-you go" system that would lead to wild swings in premiums. "It's dangerous to assume there is some sort of property right in the insurance fund," he said.

Ms. Helfer also warned lawmakers against clouding legislation primarily designed to capitalize the Savings Association Insurance Fund with other, more contentious issues. As an example, she cited House Banking's effort to merge the thrift and bank charters.

"The FDIC is concerned that examination of the many issues inherent in a merger of the bank and thrift charters could delay prompt action on the pressing need to shore up" the thrift fund, Ms. Helfer said.

Jonathan L. Fiechter, acting director of the Office of Thrift Supervision, agreed. "I'm concerned thrifts could be harmed" if they are required to divest quickly of activities not allowed at banks, he said. "I urge we take time."

Both the House and Senate banking committees are tying the thrift fund rescue to a budget package that Congress is working to enact quickly. Each would levy a one-time fee Jan. 1 on thrift deposits to raise $6 billion for the fund. The Senate panel approved its version of the legislation on Wednesday.

The House version would merge the bank and thrift charters and the insurance funds on Jan. 1, 1998. The Senate bill only address a merger of the funds, but insists legislation melding the charters be enacted first.

Merging the charters includes difficult issues such as the fate of state-chartered thrifts, preservation of thrifts' special powers, and how unitary thrift holding companies should be regulated.

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