With the federal government poised to drop deposit insurance premiums to zero for most of the nation's banks on Jan. 1, thrift executives are worried they'll be unable to vie for customers if the banks use the windfall to raise deposit interest rates.

"I'm nervous about it. I'd be lying to you if I said I wasn't," said C. William Landefeld, president and chief executive of Citizens Savings Bank, Normal, Ill., and the first vice chairman of America's Community Bankers, a thrift trade group. "I would rather be sitting in their shoes right now than in my shoes."

"They have 23 cents per $100 to play with that we don't," said Herbert G. Chorbajian, chairman of Albank Financial Corp., Albany, N.Y. "Effectively, they're not paying any FDIC insurance. That's a huge competitive disadvantage."

And some thrifts are sounding the alarm that without some equitable resolution to the problem, the industry could face another crisis.

"We think the market situation can be very dangerous if it's allowed to persist for any extended period of time," said Mary Trigg, spokeswoman for H.F. Ahmanson & Co., parent of Home Savings of America. "The thrifts can't afford to give away 23 basis points. We're in such a narrow-margin business to begin with and if we're competing against banks that have that advantage, there are S&Ls that are just not going to be able to stick that out."

Since the Federal Deposit Insurance Corp. lowered insurance premiums for banks to 4 cents from 23 cents for every $100 of deposits, thrift executives have been predicting dire consequences for their industry, which they say will face a severe competitive disadvantage with banks until Congress settles on a plan to recapitalize the Savings Association Insurance Fund.

So far, however, thrift officials admit that their fears haven't materialized. Instead of using the lower premium to maintain margins while boosting deposit interest rates to attract customers, the banks have been taking both their refund and the money not spent on insurance straight to the bottom line to help quarterly earnings.

"The banks are not taking full advantage of this opportunity as they did in the past and perhaps sharing some of the benefit of their premium decline with the customer," said Anat Bird, chief operating officer of Roosevelt Financial Group, St. Louis. "But they're certainly becoming more competitive than they have in the past."

Thrift industry officials suspect that the bankers, like the thrifts, have been unsure of what Congress will do and have preferred waiting until the budget crisis, and the insurance fund legislation, are passed.

But with the FDIC slated to drop premiums a second time Jan. 1, to zero for the strongest banks, the thrifts aren't so sure that their banker colleagues will hold back any longer, especially if they need the funds to support loan growth.

That's particularly true of the small community banks, which are more of a short-term competitive threat for thrifts than the large banks, said J.L. Thomas, president and chief executive of Quaker City Federal Savings and Loan Association, Whittier, Calif. He explained that big banks are more likely to send their windfalls to the bottom line for shareholders, making them a longer-term threat.

"We didn't see any pricing changes in the local market, but I don't think that that is going to be the case when it gets down to zero," Mr. Landefeld said. "It's going to be tough for thrifts to match those pricing levels because of that 23-basis-point anchor that we're having to drag along with us."

"We haven't been able to quantify it, but I'm sure it's hurting us," said D. Tad Lowrey, president and chief executive of Cenfed Financial Corp., Pasadena, Calif. "It's no big deal yet, but it's very important that Congress get this fixed, because banks may move to be more aggressive once they see the premium is zero."

That would force thrift executives to either pony up the same rate hikes or fee cuts - or face the loss of potential - as well as existing - savings customers. But if they do try to compete head to head while still shelling out higher insurance premiums, as many insist they must, executives say it will cut dramatically into their bottom lines.

"We're going to feel the crunch. It's going to be very costly to all of us," said Ruby Wimberley, president of Orange (Tex.) Savings and Loan Association. "They can afford to pay a big differential, if they pass it on to the depositors. We'll match the rates, even if it reduces our profits. We really have no choice."

With the realities of the premium differential and the potential competitive edge for banks upon them, thrift executives are more eager than ever for action from Capitol Hill - fast.

"I wouldn't call it panic, but I am very concerned," said David L. Hoppes, president of Mutual Savings Association, Leavenworth, Kan. "I'm hopeful that we can still get a bill quickly and pay our one-time fee and get back on a level playing field."

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