Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, February 13, 1991 TAG: 9102130068
SECTION: BUSINESS PAGE: B-7 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
Under the proposal from five industry trade associations, outlined in a letter Tuesday to FDIC Chairman William Seidman, some banks would lend $10 billion voluntarily to the struggling fund that insures their deposits.
To repay the borrowing, the FDIC would charge all banks a special insurance premium of about $1 billion a year, on top of the existing premium of around $5 billion.
"Ten billion is at the thin edge," said Robert Litan of the Brookings Institution, a Washington-based research organization. "If you believe we're going to have a mild recession, it could be enough over the next three years . . . but it easily could be more than that."
The White House Office of Management and Budget has projected the fund will need an extra $22.2 billion over five years.
More than 1,000 bank failures over the past six years depleted the FDIC to $8.5 billion at the end of 1990. Government projections show it running out of money as soon as the end of this year.
"We believe we have outlined a program that will meet the immediate needs of the insurance fund," said Richard A. Kirk, president of the American Bankers Association.
But, he conceded, "If we go into a long-term recession, your guess is as good as mine."
Asked if the industry would be willing to pledge more if needed, said Eugene Miller, chairman of the Association of Bank Holding Companies: "We'll have to cross that bridge when we come to it."
In return for their commitment to lend $10 billion, bankers asked for a number of concessions.
They want taxpayers - not the industry-financed FDIC - to pay the cost of protecting uninsured depositors in failed banks when top government officials decide that must be done to protect the entire financial system. The FDIC should pay only up to $100,000 per account, they said.
And they want their regular insurance premium to be capped at its current level, 19.5 cents per $100 of deposits.
Officials of the FDIC, the Treasury Department and the Federal Reserve had no immediate response to the proposal.
Economist Martin Regalia of the National Council of Savings Institutions, a trade group that was not part of the deliberations, said it would be cheaper and simpler for the FDIC to borrow directly from the Treasury. The loan could still be repaid by bank premiums.
A group of 12 private banking experts, the Shadow Financial Regulatory Committee, said the bankers' position reminded them of savings-and-loan executives' maneuvers in the 1980s.
"The industry . . . has put a covered basket with a baby on the doorstep of the taxpayers. . . . It may be a very, very ugly baby," said University of North Carolina economist Robert A. Eisenbeis, a member of the shadow committee.
by CNB