WASHINGTON The thrift industry grew for the first time in six years, but its top regulator warned Friday that it may face extinction.

The danger comes from the "looming" prospect that thrifts will pay more for deposit insurance than banks, said Jonathan L. Fiechter, acting director of the Office of Thrift Supervision.

"Are we going to have a SAIFinsured thrift industry going forward?" Mr. Fiechter asked at a news conference called to announce second quarter results for the nation's savings and loan associations.

The 1,612 OTS-supervised thrifts earned $1.3 billion in the April-to-June quarter, up from $750 million in the first quarter and even with earnings in the second quarter of last year.

Earnings nearly doubled from last quarter, mainly due to extraordinary first-quarter items rather than stronger earnings across the board. "The earnings are really pretty steady," Mr. Fiechter said.

The industry's assets also increased by $4 billion in the second quarter to $773 billion.

"That is the first time since 1988 that the trend has not been downwards," said Mr. Fiechter, who expects assets to grow further over the next 18 months.

But that will change in the long term if thrifts pay 8 to 10 basis points after taxes more than banks for deposit insurance, Mr. Fiechter said. He is a member of the Federal Deposit Insurance Corp. board, but stopped short of saying he would vote against reducing bank premiums as a way of avoiding the disparity.

The Savings and Community Bankers of America agreed that unless a solution is found, the industry will face a crisis.

The 15 -to- 18 basis point insurance premium differential thrifts could face, "Will lead to a gradual demise of an industry because of a competitive disadvantage," said SCBA's chief economist, Robert R. Davis. The association advocates merging the bank and thrift insurance funds.

Mr. Fiechter said the solution would be to find a source besides the SAIF fund to pay the interest on the Financing Corp. bonds, which helped pay for the S&L cleanup.

"I don't believe you will have institutions failing immediately," Mr. Fiechter said. But in the long run, thrifts that run into trouble will find it harder to recapitalize as Wall Street refuses to back a less competitive industry.

"The investors will focus on this millstone around the neck of the thrifts," Mr. Fiechter said. "That will at the end of the day prove an even greater cost to the government."

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