New Rules to Raise Banks’ Cash Levels, Payments to FDIC

The two federal agencies responsible for the fiscal health of the nation’s saving and loans and commercial banks announced Monday that they will require financial institutions under their jurisdiction to hold a larger percentage of their assets in cash and other capital.

In a related matter, the House voted Monday to lift the ceiling on the amount the government can raise premiums paid by the nation’s banks for federal deposit insurance.

Under the change ordered by the Office of Thrift Supervision and the Comptroller of the Currency, capital standards will be tightened from about 3% to between 4% and 5% of total assets.

The new rules, which take effect Jan. 1, are part of a movement to make capital standards uniform throughout the banking industry. Although some especially healthy banks will still be permitted to hold only 3% of their assets in cash, most financial institutions regulated by the two agencies will now have to conform to the tighter standards mandated for banks under the jurisdiction of the Federal Reserve and the Federal Deposit Insurance Corp.

Comptroller of the Currency Robert L. Clarke told committee members last week that he would prefer to keep the capital standard, or “leverage ratio,” at 3%. But at the same hearing FDIC Chairman L. William Seidman advocated tighter standards to rein in banks inclined to take risky investments.

Last week, Senate Banking Committee Chairman Donald W. Riegle Jr. (D-Mich.) complained in a Senate hearing that “I don’t think we can fool around longer with the capital issue unsolved,” and urged the two regulators to settle the issue “in the next 30 days.”

Legislation passed last year to resolve the S&L; crisis mandated that the different federal agencies develop stricter and more uniform capital requirements.

Separately, the House vote on federal deposit insurance came four days after the legislation was introduced by House Banking Chairman Henry B. Gonzalez (D-Tex.). It is part of an accelerating effort to prevent another multibillion-dollar bailout of the financial industry.

The bill, which also permits the FDIC to increase premiums more frequently, grants the agency greater flexibility to manage the weakened federal insurance system.

House Banking Committee members have expressed concern throughout the summer that the nation’s banking industry was weakening and in need of tougher federal regulation. A recent federal study reported that “not since its birth during the Great Depression has the federal system of deposit insurance for commercial banks faced such a period of danger and uncertainty as it does today.”

The study showed that the FDIC’s Bank Insurance Fund, which is supposed to contain $1.25 for every $100 of insured deposits, contains less than half that amount--a mere 60 cents per $100.

In an effort to rebuild the fund, last month the FDIC agreed to raise the insurance premiums which banks pay to 19.5 cents per $100 of deposits--a move that was expected to generate an additional $2 billion for the fund.

“We did not welcome that increase by any means,” said Charlotte LeGates, spokesman for the National Council of Savings Institutions. “But it was part of the process” of rebuilding the insurance fund.

While her group does not oppose the new legislation, she said “we are very deeply concerned that future rises will so severely squeeze operating costs that a large number of institutions can no longer be competitive.” The rates “went up like ‘zap,’ ” she said.

Some observers suggest that Congress is accelerating efforts to be tougher on the country’s financial industry as the autumn elections approach.

Riegle has introduced similar legislation, and the Senate is expected to take action soon.