Seidman Warns of Pressure To Raise Thrifts' Premium

Says Trigger Could Be Bank Fees Above 23 [cents]

WASHINGTON -- Thrifts' deposit insurance premiums, currently 23 cents per $100 of deposits, are likely to go higher if commercial banks' premiums rise above that level, Federal Deposit Insurance Corp. Chairman L. William Seidman said on Monday.

The thrifts' current premium rate is the same that commercial banks will pay starting July 1. Although there is no legal limit on the bank premium, the thrift premium cannot go higher than 23 cents.

Mr. Seidman supports a 30-cent cap on the bank premium as part of a plan to replenish the Bank Insurance Fund. He told thrift executives that any further increase in banks' assessment will create pressure to raise the thrifts' rate.

A Matter of Equity

Noting that the FDIC's Savings Association Insurance Fund is scheduled to receive $16 billion in federal appropriations over the next nine years, Mr. Seidman asked, "How can the S&Ls pay a lower rate when the S&Ls are being financed by the government while the banks are presumably paying their own way?"

Commercial bankers would likely call for parity in an ironic role reversal -- thrift premiums have been higher than banks' for the past six years.

Bank premiums have risen three times, from 8.3 cents per $100 of deposits, since the Financial Institutions Reform, Recovery, and Enforcement Act was passed in 1989.

Under that law, thrift premiums are scheduled to drop to 18 cents in 1994 and to 15 cents four years later.

"There is a problem coming if banks do have to raise premiums above current levels," Mr. Seidman told the U.S. League of Savings Institutions' annual regulatory and legislative policy conference.

Although Mr. Seidman is no fan of further increases, he has said banks may have to shoulder a 30-cent premium for a few years to avoid a taxpayer bailout of the Bank Insurance Fund.

In his remarks to the U.S. League, the FDIC chief reiterated his view that banks can pay for a recapitalization of their insurance fund, provided that the real estate sector, highly leveraged transactions, and the general economy do not worsen significantly.

"If you can get control of the asset side and improve supervision, you ought to be able to get premiums down much lower," he said.

Charter May Lose Value

In what he said would be his last speech to the U.S. League as FDIC chairman, Mr. Seidman raised questions about the future of the thrift charter.

The thrift-reform law opened the Federal Home Loan Bank System to all financial institutions and took away most other advantages of being a thrift, he said. And the Office of Thrift Supervision "is always going to be a high-cost supervisor, simply because they have a shrinking base," Mr. Seidman added. Cost alone could prompt some institutions to abandon the thrift charter, he said.

He said he favors making the FDIC the backup regulator of all financial institutions. The bailout law gave the FDIC that authority over savings institutions. At present, only national banks lack backup regulation, "and the largest losses in the Bank Insurance Fund have been in that area," he said.

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