FDIC raises bank deposit-insurance fee 60%

WASHINGTON — WASHINGTON -- The board of directors of the Federal Deposit Insurance Corp., concerned about the deteriorating health of the banking system, voted yesterday to raise by more than 60 percent the deposit insurance premiums commercial banks must pay.

The unanimous vote by the five-member board to raise the premiums for next year to 19.5 cents per $100 of deposits came after an FDIC report yesterday showed that the govern


ment's bank insurance fund is suffering greater losses than was previously thought because of the rising rate of failures among large banks.

The insurance fund's reserves declined by 14 percent, from $13.2 billion at the end of 1989 to $11.4 billion by the end of June.


FDIC officials said they expect large bank failures to result in the loss of as much as $3 billion at the insurance fund for 1990, $1 billion more than they previously expected.

"There are no two ways about it," FDIC Chairman L. William Seidmansaid. "The insurance fund is under strain because of the increased costs of handling bank failures."

The move to raise premiums to 19.5 cents should provide an extra $1.1 billion for the fund over the next year, according to the FDIC. The premium is currently 12 cents per $100 in deposits. It was previously scheduled to rise to 15 cents in 1991.

Congress and the Bush administration are debating a series of dramatic reforms in the structure of the banking industry to avert a repeat ofthe savings and loan crisis.

Sen. Donald W. Riegle Jr., D-Mich., chairman of the Senate Banking Committee, warned yesterday that the failure of one major bank could virtually wipe out the federal insurance fund.

An FDIC spokesman said the agency thinks it would take at least two major bank failures to obliterate the fund. But Mr. Seidman, who testified before a subcommittee of the House Banking Committee, acknowledged that the insurance system and the banking industry are both under enormous stress and could crack under further pressure.

"A number of extraordinary events, such as a substantial downturn in the economy . . . could further deplete the insurance fund," Mr. Seidman warned.

To give bank regulators greater flexibility, Congress is removing the ceiling on the level of insurance premiums that the FDIC can charge member banks. Under current law, the FDIC is not allowed to increase premiums beyond the level approved yesterday until 1992.


The House has passed a bill that would remove the ceiling, and Mr. Riegle has vowed to push the measure through the Senate Banking Committee next week.

A number of alternative measures also have been offered, including one House bill that would raise an additional $25 billion for the insurance fund by requiring banks to pay the equivalent of 1 percent of their deposits in premiums.

"The FDIC bank insurance fund is facing a dire crisis," said Representative Frank Annunzio, D-Ill., chairman of the House Banking subcommittee on financial institutions and author of the bill calling for the 1 percent premium level. "The Congress tTC cannot play chicken with the fund and hope there is not another bank failure in the next few months."

Mr. Seidman, however, warned that higher insurance premiums alone will not cure the worsening crisis in the banking and thrift industries.

"If there are to be lasting improvements in the deposit-insurance system, structural problems in the banking industry also must be addressed," Mr. Seidman said. "The purpose of deposit insurance should not be to hold together an antiquated industry."

Meanwhile, Timothy Ryan, the director of the Office of Thrift Supervision, told the Senate Banking Committee that he thinks the savings and loan industry will survive its current debacle, but in a much smaller form.


"For some of the healthier institutions, it looks like this [the thrift industry] could be a very good niche business," Mr. Ryan said.