Most banks avoid rise in FDIC fees Regulators yield to political pressure

September 16, 1992|By New York Times News Service

WASHINGTON -- Bowing to political pressure, federal regulators yesterday cut in half a proposed increase in the insurance premiums that banks pay to the deposit insurance fund -- and exempted three-quarters of the industry from any increase at all.

The decision by the Federal Deposit Insurance Corp. to set the rate increase at an average of 10.4 percent, half the amount proposed in May, came after intense lobbying by the Bush administration and the banking industry.

The increase takes effect Jan. 1, two weeks after regulators will begin to seize more troubled banks under a new banking law. The higher premiums are intended to cover the cost of insuring depositors in these failing banks.

The unanimous action reflects the tightening grip by the Treasury Department over the agency just three weeks after the sudden death of its chairman, William Taylor. He had sought an average increase of 22 percent, to 28 cents for every $100 in deposits, and had provided the swing vote in May for tentative approval of that increase.

Banks now pay insurance premiums of 23 cents for every $100 in deposits. After Jan. 1, the strongest institutions would continue to pay the current rate, the weakest banks and savings associations would pay 31 cents, and the average increase would be 2.4 cents.

At the end of June, the insurance fund that protects $3 trillion in bank deposits had a deficit of $5.5 billion and, even with the premium increases, the fund is not expected to show a positive balance until well after the year 2000.

The administration has sought in this election year to convey the impression that the worst is behind the banking and savings and loan industries.

"I think this is a reasonable approach," said Deputy Treasury Secretary John E. Robson, who played the pivotal role for the administration in shaping the new rates. "It recognizes the fact the industry has had a substantial improvement over the past few months."

But many bank analysts and regulators believe that a recent surge in the industry's earnings is only temporary, a creation of this year's drastic plunge in interest rates. Those low rates have enabled the banks and savings associations to widen the difference between the amount they charge borrowers and the yields they pay depositors, and also earn new revenue from the wave of mortgage refinancings.

The banks have also made money on government securities, which they have been holding in record amounts, even as they have been making fewer corporate and real estate loans.

As the anemic economy and high unemployment have become dominating issues in the presidential campaign, the administration has moved to relax lending, appraisal and examination regulations in an effort to stimulate more borrowing.

It has also effectively abandoned its quest for more money from Congress for the stalled bailout of the savings and loan industry, which by some estimates will wind up costing taxpayers about $500 billion, including interest, over the next 40 years.

But critics including Rep. Henry B. Gonzalez, chairman of the House Banking Committee, have accused the regulators of playing politics with bank failures and putting off the industry's troubles until after the election.

Mr. Gonzalez, a Texas Democrat, has compared this year to 1988, when the Reagan administration denied the existence of a problem in the savings and loan industry. Subsequently, the newly elected Bush administration began to acknowledge it.

Sen. Donald W. Riegle Jr., who heads the Senate Banking Committee, called the vote "a mistake" that puts "at greater risk" the repayment of the huge loan granted by Congress last year to the FDIC to keep it afloat.

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