
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, March 22, 1991                   TAG: 9103220105
SECTION: BUSINESS                    PAGE: A-9   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

BANK PROTECTION PLAN NEARLY TRIPLED

The Bush administration's $25 billion borrowing plan to shore up the dwindling government insurance fund protecting bank deposits became a $70 billion plan Thursday.

William Seidman, chairman of the Federal Deposit Insurance Corp., told the Senate Banking Committee that the plan would provide $70 billion in new standby borrowing authority.

Just a day earlier, the Treasury Department had described its program for bolstering the FDIC as a $25 billion line of credit at the Federal Reserve. But Seidman told the panel a rule change in the administration's plan also would increase its ability to borrow "working capital" by $45 billion.

Treasury spokeswoman Cheryl Crispen said the working capital provision had always been in the administration's 317-page bill, but she acknowledged that the $45 billion figure was not included in summaries distributed to reporters and trade groups.

The $25 billion from the Federal Reserve would cover losses in failed banks and the FDIC would charge banks higher insurance premiums to repay the loan. The $45 billion theoretically would be recovered by selling loans and other assets inherited from failed banks.

Seidman said he envisioned needing no more than half of the $70 billion through 1993 under a worst-case scenario.

"Frankly, it would be a disaster if we ever had to borrow" $70 billion, he said.

The agency's "base line" scenario, he said, is that bank failures will have eased by 1993 and insurance premiums paid by banks will start to rebuild the fund, which has fallen from $18.3 billion at the end of 1987 to $8.5 billion at the end of last year.

Seidman's testimony sounded an alarm within banking trade groups that have been warning that borrowing too heavily could overburden the remaining banks and cause even more failures.

Seidman said there were only two ultimate sources of money to pay for bank failures: the banking industry or the taxpayer.

"The insurance is given by the federal government," he said. "If the industry is judged incapable, then the taxpayer would have to pay."

It is "highly unlikely, but not impossible" that the banks would not be able to pay off the proposed borrowing over time, Seidman said.

by CNB