Bankers offer plan to fortify FDIC fund


WASHINGTON -- The banking industry proposed yesterday a $10 billion plan to reinforce the nation's unsteady deposit insurance fund as concern grows over the government's ability to cover the increasing number of failed banks.

The proposal, released by the American Bankers Association and other trade associations, calls for the borrowing of up to $10 billion to bolster the insurance fund that covers bank deposits.

Critics said the plan could fall short of what is needed to replenish the insurance fund and ultimately force taxpayers to subsidize bank bailouts.

Under the plan to pump new cash into the fund, the Federal Deposit Insurance Corp. would sell bonds on an "as needed" basis to banks. Banks, in turn, could sell the federally insured bonds in a secondary market. Debt on the borrowing would be paid by a special assessment on banks above the current premium on deposits they pay to finance the insurance fund.

Banks pay a rate of 19.5 cents for every $100 of deposits, an assessment that has doubled since 1989 as the number of bank failures has increased. In the past three years, 597 banks have gone under, including 169 in 1990.

The bankers' proposal, outlined in a letter yesterday to FDIC Chairman L. William Seidman, calls for capping the premiums at 19.5 cents.

The letter offered no details of how much banks would pay in the special assessment, but industry officials said it could be an additional 3 to 4 cents, raising about $1 billion a year.

The proposal would have to get Mr. Seidman's approval. An FDIC spokeswoman said Mr. Seidman, who is in London this week, would have no immediate comment on the banking industry proposal.

Banking industry officials said they have received clear indications that Mr. Seidman views the plan favorably.

"I think our program would be consistent with what the federal government would like to do," said Richard A. Kirk, president of the American Bankers Association.

The plan could sustain the insurance fund through a mild recession but not a long-term economic downturn, critics said.

Some government estimates say the fund will need as much as $20 million in the next several years to cover bank failures.

Representative Henry B. Gonzalez, D-Texas, chairman of the House Banking Committee, called the bankers' plan "a public relations smoke screen designed to hide the fact that banks may soon be at the federal welfare window."

The government has made a practice of covering deposits beyond the $100,000 per account limit as part of the "too big to fail" doctrine, fearing that failure to protect big banks could send shock waves through the economy.

The bankers' proposal calls for an end to the policy of covering uninsured deposits, suggesting that taxpayers should subsidize bank bailouts if federal regulators intend to protect uninsured deposits.

The insurance fund stood at a healthy $18.3 billion in 1987. But heavy bank failures drained the fund to $9.2 billion at the end of 1990, according to FDIC estimates.

Some government analysts have predicted that the insurance fund could go broke by the end of this year unless steps are taken to bolster it with cash.

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