ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Wednesday, October 9, 1996 TAG: 9610090021
SECTION: BUSINESS PAGE: B8 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: ASSOCIATED PRESS
The Federal Deposit Insurance Corp. adopted rules Tuesday to revive the savings and loan deposit insurance fund by having thrifts and some banks make a one-time payment of $4.5 billion.
The unanimous vote by the five-member FDIC board came about a week after Congress passed bank reform legislation to rescue the Savings Association Insurance Fund, or SAIF. The law eliminated the possibility of additional taxpayer financing for the thrift crisis, which is expected ultimately to cost taxpayers about $481 billion.
And it shored up a deposit insurance fund that customers at the nation's 1,981 S&Ls depend on to protect their savings. The SAIF covers losses up to $100,000 if a thrift fails.
The SAIF had become shaky as more thrifts either converted to banks or went out of business, leaving fewer S&Ls around to make annual payments. Large payments on S&L rescue bonds also drained revenue from the SAIF.
Despite the insurance fund's problems, the S&Ls financial nightmare of the 1980s has largely ended. The industry now is healthy enough to shoulder much of the one-time $4.5 billion SAIF rescue payment. The FDIC oversees the separate deposit insurance funds for banks and S&Ls.
Congress passed the SAIF rescue after hearing repeated warnings of a brewing crisis in the S&L industry: a huge mismatch between the insurance rates charged to banks and thrifts. The bank insurance fund, which is at record strength, charges healthy commercial banks only a minimal maintenance fee, while the SAIF insurance fee was 23 cents for each $100.
To save money, S&Ls were rapidly converting to commercial banks, thereby taking advantage of a huge savings for deposit insurance. In the second quarter, thrifts with $2.5 billion in deposits jumped ship to become banks. If this mismatch between the S&L and bank fees persisted, regulators feared most healthy thrifts would convert to banks, leaving only a handful of marginal S&Ls left to pay into the SAIF.
Roger Watson, the FDIC's director of research, said the SAIF plan was the culmination of a ``three-year effort on the part of the FDIC, administration and the Congress to avert what could have become another crisis in the deposit insurance system.''
The FDIC-approved rules levy a special one-time fee on S&Ls and some banks to bring the deposit fund to its target level of $1.25 per $100 in deposits.
LENGTH: Medium: 51 linesby CNB