FHLBB May Hike S&Ls;’ Insurance Premiums 150%

The Federal Home Loan Bank Board is weighing an increase of as much as 150% in the insurance premiums paid by savings and loan associations to replenish the trust fund protecting savers’ deposits.

Drained by 26 costly failures and mergers in 1984, the Federal Savings and Loan Insurance Corp.’s reserves now stand at 0.92% of insured deposits, a record low, FHLBB Chairman Edwin Gray said last month.

In a Dec. 28 letter to Federal Home Loan banks around the country, the FHLBB said it expected “in the near future to consider very seriously the question of an additional special assessment of one-eighth of a percent of deposits over and above the annual premium of one-twelfth of a percent.”

That would mean raising the premiums to as much as $1.58 billion from the current $633 million annually on insured deposits of $760 billion. And such an increase would be a “big burden” on the nation’s thrifts, according to Dennis Jacobe, an economist with the U.S. League of Savings Institutions.

Jacobe estimated that S&Ls;’ earnings during 1984 amounted to $1.5 billion, plus $600 million ceded to them from Federal Home Loan Mortgage Co. profits. In other words, three-quarters of the institutions’ 1984 earnings would have gone to pay federal deposit insurance.

About 25% of the nation’s S&Ls; are operating in the red but any increased insurance assessment would be payable whether or not the institutions were losing money.

Such an increase would come at the same time the board has proposed that savings and loans rebuild their capital bases. Institutions would have to raise their net worth as a percent of new deposits, with the maximum being a 5% net-worth requirement on growth of more than 25% a year. Thus, the fastest growing S&Ls; would be hardest hit by both proposals.