WASHINGTON -- Moving to shore up the ailing fund that protects bank deposits, Federal Deposit Insurance Corp. asked Congress yesterday for the authority to charge banks premiums based on their financial health rather than their size.
The theory is that a fee structure in which weaker banks pay more than sound ones would discourage risk-taking and speculative investments, as private insurance is thought to do with other industries. Since the bank insurance fund was created in 1934, banks have been charged a flat fee based on the amount of insured deposits.
"The premise behind it is to make the insurance resemble as closely as possible what's done in the marketplace," L. William Seidman, chairman of FDIC, said in a recent interview.
Mr. Seidman suggested to Congress Monday that another way to strengthen the insurance fund would be a one-time assessment on the industry of $25 billion and an 18 percent increase in banks' premiums. That suggestion could be adopted in tandem with a risk-based fee structure.
The Treasury Department is preparing to complete a wide range of proposals soon on overhauling the nation's banking system that will likely include a plan for a risk-based system. If adopted, experts say, the risk-based fee system would almost certainly lead to further consolidation among banks. Consequently, some question the wisdom of so dramatic a policy shift.
"It would open up a whole can of worms," said R. Dan Brumbaugh Jr., one of the three authors of a congressional study, made public earlier this week, that painted a bleak portrait of the banking industry and the federal insurance program.
However, just how riskiness would be determined remains to be worked out among regulators.
Premiums could be based on the riskiness of the investments made by the banks or merely on their capital levels.
The bank insurance fund is at its lowest ratio to deposits in its history, and it is expected to lose at least $9 billion in 1990 and 1991, bringing it to about $4 billion by the end of next year. In January, the flat fee paid by banks will increase to 19.5 cents per $100 in deposits, from 12 cents, and FDIC has said it would consider raising rates again early next year.
The industry remains divided over the risk-based proposal.
"On matters like this, the world gets pretty greedy," said Kenneth A. Guenther of the Independent Bankers Association, a trade organization that represents smaller institutions.
"Every good bank that sees its premiums go sky-high is in favor of such a program," Mr. Guenther said.