Bush Administration is leaning toward charging U.S. banks and savings and loans higher fees to pay for the cleanup of the thrift industry after its suggestion of having depositors pay user fees was shot down by Congress last week, banking sources said Monday.
“It appears they have moved off the user fee on deposits toward increasing the assessment on depository institutions,” said Kenneth Guenther of the Independent Bankers Assn. of America.
“What started out as a user fee on depositors now looks like a hike in deposit insurance premiums,” added Fritz Elmendorf of the Consumer Bankers Assn.
The Bush Administration invited controversy its first week in office with its idea to charge bank and thrift customers a fee of 25 to 30 cents for every $100 of deposits. The funds would go to rescue the nation’s ailing thrift industry.
The Federal Savings and Loan Insurance Corp., which insures deposits at member thrifts for up to $100,000, faces billions of dollars in liabilities because of losses at federally insured thrifts.
The Treasury Department has been considering higher premiums for deposit insurance and is undecided whether banks or customers should pay, a department spokesman said.
But after severe criticism from members of Congress, President Bush now wants to narrow the size of the group that will pay to clean up the nation’s thrift crisis, said the IBAA’s Guenther.
“They are still rejecting the broadest group of all by saying they will not take the money out of general revenues,” Guenther said.
Raising insurance premium fees on banks to pay for troubled thrifts will also cause hundreds of profitable banks to go into the red, Guenther added.
Richard Breeden, a special assistant to Bush, told the American Banker trade publication that the Administration wants to avoid having taxpayers cover the cost of the savings and loan crisis. It would be easier to raise the premiums on banks than to charge depositors a user fee, Breeden told the newspaper.
“If you raise premiums, you don’t have to ask taxpayers to pay a nickel,” Breeden said, adding that he thought federal deposit insurance was underpriced.
One plan being considered would have financial institutions pay the higher fee, White House Chief of Staff John Sununu said in a television interview Sunday.
In addition, Treasury Secretary Nicholas F. Brady said last week that the 25-cent user fee was one option Treasury was considering to restore FSLIC to financial health.
But members of Congress criticized the idea, saying it violated Bush’s pledge of no new taxes and would also discourage savings.
Referring to higher premiums, the Treasury spokesman said: “An option within the option is who would pay the fee, the banks or the depositors.” No decisions have been made.
Banks and thrifts now pay 0.083% of their deposits for federal deposit insurance, while thrifts also pay a special assessment of 0.125%.
Separately, the Federal Home Loan Bank Board said it will require savings and loans to spell out how they are managing exposure to interest rate risks. The board, parent of FSLIC, said the new rules are contained in a bulletin from the Office of Regulatory Activities.