Fdic Slashes Insurance Premiums, Hands Banks An Early Holiday Gift Assessments Hit Historic Lows As Banking Industry Remains Robust

The robust health of the nation’s banks will mean another cut in the premiums they pay to the fund that insures depositors and nearly a $1 billion savings for the industry.

The Federal Deposit Insurance Corp.’s board of directors voted Tuesday to slash premiums, starting Jan. 1, to near zero for an estimated 92 percent of the 11,000 banks that contribute to the fund. They will pay a minimum annual fee of $2,000.

The remaining banks, rated as riskier, will pay 3 cents to 27 cents per $100 in deposits instead of 4 cents to 31 cents per $100 in deposits that they now pay. Most banks have been paying 4 cents per $100 in deposits under a premium cut that took effect earlier this year.

“The FDIC has adopted the lowest average assessment rate in the more than 60-year history of federal deposit insurance for banks,” said FDIC Chairman Ricki Helfer. “We estimate this change alone will save the banking industry about $946 million.”

She said the strength of the economy and the health of the banking industry dictated the reduction.

“American banks are now in the most competitive cost position they have been in this century,” said House Banking Committee Chairman James Leach, R-Iowa. They “have achieved an enviable position never before achieved by any industry - a pre-funded insurance fund.”

The American Bankers Association quickly cheered the lower premiums.

“The price is right,” said James Culberson Jr., chairman of First National Bank & Trust in Asheboro, N.C. “Zero is just where the premiums should be.”

The bankers association said the industry has put $5.5 billion a year into the fund for the last four years, and it now holds more than $25 billion to protect depositors against possible bank failures.

But Jonathan Fiechter, an FDIC board member and acting director of the Office of Thrift Supervision, warned against runaway optimism.

“If banks get into trouble, the first action we’d take is to raise premiums,” he said.

By law, the ratio of reserves in the insurance fund to deposits must be 1.25 percent. That means the fund must have $1.25 for each $100 in deposits.

As of June 30, the ratio was 1.29 percent and was expected to climb - perhaps up to 1.40 percent by the end of the year - if premiums remained where they were.

Some in Congress have been threatening to order a reduction in premiums if the FDIC refused to act.

Savings and loan institutions insured by the Saving Association Insurance Fund will continue paying premiums ranging from 23 cents per $100 of deposits to 31 cents per $100, depending on risk factors. The average rate is expected to be 23.7 cents per $100.

But Sterling Financial Corp. Chairman Harold Gilkey, who has worked with a national group of thrift officials trying to eliminate the disparity, said relief is in sight.

The budget reconciliation measure currently caught in the tug-of-war between White House and Congress contains language that calls for combining the funds and equalizing the premiums in return for a one-time payment by the thrifts.

That contribution would maintain the required level of reserves.

The savings association fund remains seriously under-capitalized, the FDIC said. Its June 30 balance of $2.6 billion climbed to $3.1 billion on Sept. 30, but the reserve ratio is not expected to reach the legal limit of 1.25 percent of deposits before 2002.

“This problem must be addressed before thrift premiums can be lowered,” Helfer said.

The S&L fund has been depleted due to failure of hundreds of thrifts in the 1980s. The bailout for S&Ls cost taxpayers $100 billion.