Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, February 1, 1991 TAG: 9102010238
SECTION: BUSINESS PAGE: B4 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
In a new forecast, Federal Deposit Insurance Corp. Chairman William Seidman said even a mild recession would reduce the fund to $3.9 billion by the end of this year and $2.4 billion by the end of 1992.
If the recession drags into next year, the fund would sink to zero at the end of this year and would be $5.6 billion into the red, absent an infusion of cash, a year later, he warned.
Even if the recession ends this summer, the fund will need to bolster its reserves by about $10 billion in 1991 and 1992, over and above what it expects to collect from banks in insurance premiums.
He did not say how the money should be raised but suggested a number of alternatives, including borrowing the money from financial markets.
"At this point, I don't see any likelihood that we will have to go to the taxpayer," Seidman said.
Borrowing $10 billion would place considerably less immediate strain on the industry. Banks would have to contribute only an extra $1.1 billion a year to the FDIC to pay off the borrowing over 20 years, according to figures supplied by Seidman.
He and Treasury Department officials met privately Wednesday with 20 bankers representing five trade associations, including the largest, the American Bankers Association.
Seidman is trying to persuade industry leaders to agree on a method to replenish the insurance fund and create a new fund that would invest in weak banks, hoping to prevent their failure.
Bankers are deeply divided about the second proposal. Executives of smaller and healthier institutions do not want to pay to rescue ailing large banks.
A plan to replenish the FDIC fund will be part of the Bush administration's banking-reform proposal due out next week.
According to an industry source, who spoke on condition of anonymity, another part of the plan will limit the amount of deposit insurance a person can receive to $100,000, no matter how many banks a depositor uses.
For instance, if a person had $150,000 in insured accounts split between two banks, one-third of the money in whichever bank failed would be considered uninsured.
The system would not take effect for five years and would be enforced by checking regulators' computers, which would register each account by Social Security number.
by CNB