Deposit insurance increase voted

September 18, 1990|By Chicago Tribune

WASHINGTON -- The House, acting with unusual urgency, approved a measure yesterday that would permit the Federal Deposit Insurance Corp. to boost insurance premiums banks pay to the fund that backs deposits at commercial banks.

A nearly identical bill has been introduced in the Senate by its Banking Committee chairman, Donald Riegle, D-Mich., and could come to a vote as soon as late next week.

Congress was spurred to act by two government studies last week that warned that the bank insurance fund was in danger of running out of money if even one big bank failed.

If the insurance fund went under, the reports warned, taxpayers would be called upon to reimburse bank depositors, just as taxpayers have been bailing out depositors at insolvent savings and loans after the Federal Savings and Loan Insurance Corp. was drained of its funds.

"Clearly, the bank insurance fund will go the way of the FSLIC unless quick action is taken to shore up the fund," House Banking Committee Chairman Henry Gonzalez, D-Texas, told colleagues before the bill was approved on a voice vote.

By increasing the premiums, the law would raise banks' costs of doing business. Those higher costs would no doubt be passed on to customers, who may find credit tighter and interest rates higher on loans and lower on deposits.

Still, some representatives worried that more significant action is required.

"Permitting an increase in insurance rates will not bring into the fund the billions of dollars that are needed now," said Rep. Frank Annunzio, D-Ill., a senior member of the Banking Committee.

Annunzio would like to go further and require banks to place 1 percent of their federally insured deposits, or about $20 billion, into FDIC reserves.

Gonzalez's measure, which he and Rep. Chalmers Wylie, R-Ohio, introduced Thursday, sped through the House after lawmakers concluded that the FDIC fund was on the brink of insolvency.

The fund, which lost more than $5 billion in 1988 and 1989, is expected to lose $2 billion this year, according to FDIC Chairman L. William Seidman.

That would reduce reserves to about $11 billion or about 0.55 percent of the $2 trillion in federally protected bank deposits. That ratio is the lowest in the fund's half-century history and well below the ratio of 1.25 percent set by law for 1995.

Under S&L bailout legislation, the FDIC can raise its premiums -- the money it charges banks for insurance -- only once a year. In addition, the rate is capped.

Last month, the FDIC board voted to boost the premium by the maximum allowed. The increase will add $2.1 billion to the $2.9 billion already scheduled in premiums for next year.

But lawmakers said even higher rates are needed, because the fund's obligations have the potential of increasing sharply as a result of deteriorating commercial real estate markets.

The House measure would remove the rate limit and allow the FDIC to increase premiums six times a year. The Senate bill would permit two rate hikes a year.

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