Merging the bank and thrift insurance funds could produce a more stable pool that would be less expensive for the industry to support.

Writing in an Office of the Comptroller of the Currency working paper, two economists find that by combining the two funds, the Federal Deposit Insurance Corp. could safely reduce the amount of money now kept in them by $3.5 billion. Banks could earn an additional $420 million annually by investing this excess, according to the study.

The economists caution that their conclusions do not take into account recent changes to the banking and thrift industries, such as the explosion of mergers and the push by thrifts into business lending.

Using historical data, the economists-the OCC's Jennifer L. Eccles and the FDIC's John J. Feid-measured how much each fund grew as the economy expanded and shrank as the economy dipped. They then used a value-at-risk model to calculate how much money each would need to provide "20 standard deviations of protection," a statistical term that means there is less than one chance in a billion that failures would bankrupt an insurance fund.

The economists calculated how much money a merged fund would need to provide the same 20 standard deviations of protection. The result: a combined fund would need 10% less capital than separate thrift and bank funds.

"This risk-pooling benefit may result in a combined fund coverage requirement that is less than that required for separate funds and still provide the same buffer against unanticipated losses," they write.

For a copy of "Two Deposit Insurance Funds: In the Public Interest?" call 202-874-5043.

Accurately detecting lending bias is extremely tough because bankers evaluate applicants differently. Stanley D. Longhofer, an economist at the Federal Reserve Bank of Cleveland, argues that some lenders have an affinity for particular segments of the market, making them better able to judge the creditworthiness of particular ethnic or racial groups.

Also, some lenders will make loans-even if they question the borrower's credit quality-if they believe they can sell the credit to the secondary market.

Finally, Mr. Longhofer says that lenders often look at the historical default rates for whites and minorities, even though it is illegal to evaluate a credit this way.

These three factors combine to distort a bank's lending record, making denial rates an imperfect gauge of bias. For a copy of "Cultural Affinity and Mortgage Discrimination," call 216-579-3079.

It would be prohibitively expensive for regulators to eliminate all risk from the payment system, according to a study by a Federal Reserve Bank of Dallas economist.

Sujit Chakravorti says that the government should instead continue to limit risk by capping the amount of debits any institution may hold, requiring a minimum asset size for participants, and imposing collateral requirements. Although these policies reduce bank profits, they prevent the failure of one institution from causing the entire payment system to collapse.

"There is a trade-off," he said. "We can live in a risk-free world, but it would be very costly." For a copy of "Analysis of Systemic Risk in the Payment System," call 214-922-5255.

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