FDIC’s Seidman Backs Banks’ Bond Plan

Federal Deposit Insurance Corp. Chairman L. William Seidman will support a banking industry plan to provide $10 billion to strengthen the ailing deposit-insurance fund, officials said Monday.

The bankers’ plan, designed to avert a taxpayer bailout, “seems to fit in a framework of what he (Seidman) is talking about,” according to Alan Whitney, an FDIC spokesman. The proposal, worked out by a diverse coalition of bank trade groups, will be formally disclosed today.

It calls for the banking industry to provide cash for the fund by purchasing a special issue of bonds from the FDIC. The purchase would give the fund an immediate infusion of cash. Later, the 20-year bonds would be repaid through the annual premiums collected from banks and by special assessments to bring in extra money.

If the program works, banks would use their money to bolster the federal insurance fund, rather than seeking a rescue from the taxpayers. The Bush Administration, Congress and regulators such as Seidman are united in their determination to avoid tapping the Treasury, if at all possible. The rescue of the insurance fund for savings and loan deposits will cost taxpayers at least $130 billion, without counting the cost of future interest payments on bonds.

The insurance fund for banks will need $10 billion to $15 billion more than currently on hand to handle the bank failures anticipated for this year and 1992.

Seidman conferred with banking industry officials before they worked on the detailed proposal to bolster the fund, and he has been kept informed of the results of the conferences involving industry trade groups. The banking industry plan follows the ideas frequently discussed by Seidman in Congressional appearances and news conferences.

The FDIC can borrow $5 billion from the Treasury, and the banking industry presumably would furnish the rest of the funds.