Saving for A Rainier Day

Like car owners who live in high-crime neighborhoods, commercial banks are facing ever higher premiums for insurance. Last week the Federal Deposit Insurance Corporation moved to bolster the reserves of its Bank Insurance Fund by proposing a total hike of 7.5 cents next year in the premium that commercial banks must pay on every $100 in insured deposits. The boost is not because of an upswing in bank robberies. Rather, the bad real estate loans that bankrupted the now defunct Federal Savings and Loan Insurance Corporation are placing a serious drain on its former counterpart, the once seemingly invulnerable FDIC.

FDIC Chairman L. William Seidman has predicted that this year the FDIC fund will lose more than $5 billion for the third year in a row; premium and interest income of $3 billion will cut the loss to $2 billion, leaving a total of $11 billion in the fund. Although Seidman has said he does not expect a major bank to fail this year, industry analysts believe Seidman's estimate must mean that at least one big bank, probably the Bank of New England, will go under. The fact that the FDIC is setting up a 400-person "liquidation" office in Boston supports that speculation.

This year's loss will give the FDIC only 60 cents of reserves for every $100 in deposits, the lowest level since it was founded in 1933 and less than half the level set by Congress. Seidman has asked for a 4.5 cents increase on top of a congressionally mandated boost of 3 cents, raising the premium to 19.5 cents per $100.

Only the timing of the announcement surprised analysts. "Doing it this early will cause more concern about the banking system," says Robert Litan, a senior fellow at the Brookings Institution. "But Seidman probably decided it would be easier now than later this year, when we might be in a recession." Litan and others are convinced that the bulk of the hike will be absorbed by consumers in the form of lower interest payments, though people may hardly notice. If completely passed on, the increase would reduce a money-market account rate from 7% to 6.925%.