Riegle: Let FDIC Raise Premiums as Needed

WASHINGTON -- The Federal Deposit Insurance Corp. must be allowed to raise premiums as needed, rather than on the current twice-a-year schedule, Senate Banking Committee Chairman Donald W. Riegle said Thursday.

He called on Congress to change the law.

Sen. Riegle was reacting to the FDIC's decision on Tuesday not to hike premiums on Jan. 1. Under current law, premiums may be raised only at the start of the year and at midyear.

Effect on Credit Weighed

The FDIC wants more time to study the ramifications of any hike, FDIC Vice Chairman Andrew "Skip" Hove said in an interview Thursday. He said an increase now might discourage banks from attracting deposits at the very time they need lendable funds to stimulate the economy.

Mr. Riegle said limiting the FDIC to premium hikes only on Jan. 1 and June 30 puts the agency "in a bind."

"I think that is a good suggestion, to take that fixed date out of the law," the Michigan Democrat said during a committee hearing on the Resolution Trust Corp. "I don't think we ought to be locked in."

The suggestion for flexibility was made by former FDIC Chairman L. William Seidman, who testified Thursday.

Who Will Foot the Bill?

The FDIC's decision to forgo a Jan. 1 increase has led some observers to conclude that the agency is not committed to making the industry pay for recapitalizing the Bank Insurance Fund.

"The prospect of a taxpayer bailout has gone up," Mr. Riegle said.

"Can the FDIC and the industry together straighten out the FDIC's shortage without involving the taxpayer?" said Edward J. Kane, a banking professor at Ohio State University. "I have believed for a long time that they cannot, and I believe that this is a piece of confirming evidence."

Deficit Forecast Tripled

At the same time it decided not to raise premiums, the FDIC tripled its previous forecast for the deficit in its fund next year. The data show a $2.6 billion reserve at yearend 1991, negative $9.6 billion in 1992, and negative $18.3 billion in 1993, assuming no worsening in the economy.

In the worse case, the Bank Insurance Fund could be negative $28.9 billion by the end of 1993.

"I think it is ironic that at the same time they are releasing bigger loss estimates, they are making their revenue options less than they could," said Karen Shaw, president of the Institute for Strategy Development.

Congress is considering legislation to allow the FDIC to borrow up to $25 billion to cover losses and another $45 billion for working capital.

But the FDIC is betting that the industry's problems will end next year and it will only need $10 billion.

Mr. Hove said Thursday that the bank fund will need $10 billion to get through 1992 and that the last premium increase was designed to provide the money.

The last hike took effect July 1, to 23 cents per $100 of deposits from 19.5 cents. The rate has tripled in the past two years.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.