U.S. banks' insurance premiums lowered; SAIF institutions unchanged.

The Federal Deposit Insurance Corporation significantly reduced deposit insurance premiums that most U.S. commercial banks will pay in 1996. The decision took effect on January 1 and is expected to save the banking industry nearly $1 billion in insurance costs.

Under the new rate structure for the Bank Insurance Fund (BIF), assessment rates will be lowered by $0.04 per $100 of domestic deposits. The highest-rated banks--approximately 92% of the roughly 11,000 BIF-insured banks--will pay only the statutory annual minimum of $2,000 for FDIC insurance, essentially reducing premiums to zero. The reduction will lower the average assessment rate of $0.44 per $100 to $0.0043 per $100.

FDIC chair Ricki Helfer said the FDIC had adopted the lowest average assessment rate in more than 60 years because of the BIF fund's high balance, the banking industry's health, the fund's low projected losses and the economy's strength. Consumer activist Ralph Nader criticized the decision, saying it would be better to build the fund in good times to better protect the taxpayer when the economy weakens. Heifer said the FDIC board of directors had considered the long-run funding needs of the BIF, the statutory requirement to maintain a risk-based deposit insurance system and the requirement to maintain the BIF reserve ratio at the target ratio of 1.25, or $1.25 for every $100 of estimated insured deposits.

"The FDIC board was in compliance with mandated guidelines that target the ratio at 1.25," said BDO Seidman partner Pamela J. Packard. "Current projections of the reserve ratio estimate it at 1.29 or 1.3. The FDIC board had no choice based on the numbers." She said Congress was considering legislation that would allow well-capitalized institutions to pay no premium whenever the BIF ratio was above 1.25. "This initiative could have influenced the FDIC board's decision," said Packard.

SAIF premiums unchanged

The FDIC did not reduce the premiums for institutions insured under the Savings Association Insurance Fund (SAIF). SAIF-insured institutions will continue to pay premiums on a risk-related basis of $0.23 to $0.31 per $100. The average rate is expected to be $0.237 per $100. The FDIC said the SAIF remained seriously undercapitalized--at the end of the second quarter of 1995, the SAIF needed an additional $6.27 billion to be fully capitalized. Helfer said Congress was working on legislation to address the SAIF's problem, but until the legislation became law, the FDIC board had no alternative but to keep SAIF assessment rates unchanged. Congress is expected to pass legislation imposing a one-time assessment on thrift institutions to capitalize the thrift fund.

"Survivors of the thrift industry failures are being punished," said Packard. "The failed savings institutions drained the SAlE but the survivors, who followed good banking practices, have to pay the higher premiums." Packard said this would give banks a temporary competitive advantage over savings institutions because the higher premiums were passed on to the thrifts' users.

1996 Assessment Rate Schedule for BIF-Insured Institutions

(Rate spread = $0.27 per $100; rates in cents per $100)

                            Supervisory risk subgroup

Capital category       Group A      Group B       Group C
Well                      0(*)         3            17
Adequate                  3           10            24
Under                    10           24            27

  Estimated annual assessment revenue: $104 million.
  Average annual assessment rate: $0.43.

  (*) Subject to the statutory minimum of $2,000 per
institution per year.