BANKING : FDIC Cuts Deposit Insurance Premiums to Lowest Rate

The Federal Deposit Insurance Corp., citing a healthy banking industry and growing economy, Tuesday cut the premiums banks must pay to insure customers’ deposits to the lowest rate ever.

Starting Jan. 1, the nation’s healthiest banks--or more than 9 out of 10 of the 11,000 banking institutions--will see their premiums drop to zero from the current 4 cents for each $100 of insured deposits.

The premium reduction is expected to save the banking industry about $946 million a year, FDIC Chairman Ricki Helfer said.

The banks by law will still be required to pay a minimum of $2,000 a year to the Bank Insurance Fund (BIF), which insures deposits at banks, the FDIC said.

The weakest banks will pay 27 cents to insure each $100 of deposits, down from 31 cents currently.

The cut brings the average assessment rate down to less than half a cent--0.43 cents--per $100 of deposits from the current 4.4 cents. The lowest average assessment rate previously was 3.13 cents in 1962 and 1963, the FDIC said.

“Given the historically high balance in the Bank Insurance Fund, the health of the banking industry, the low projected losses to the fund and the strength of the economy, the FDIC has adopted the lowest average assessment rate in the more than 60-year history of federal deposit insurance for banks,” Helfer said.

The deposit insurance fund has a target ratio of $1.25 for every $100 of insured deposits. The fund may have reached $1.30 per $100 of deposits at the end of September and “all indications are that the reserve ratio will continue to rise for the remainder of 1995,” the FDIC said.

“The fact that the industry is very healthy and the likelihood of bank failures very small, this was the appropriate move for the FDIC to make,” said James Chessen, chief economist at the American Bankers Assn.

The savings could translate into more loans, additional financial services or other activities or could be plowed back into profits at banks, analysts said.

While it lowered premiums for banks, the FDIC did not change the premiums that savings and loans must pay to insure deposits.

That range will stay at 23 cents for each $100 of insured deposits for the strongest savings and loans and at 31 cents for the weakest.

The Savings Assn. Insurance Fund (SAIF), which insures deposits at thrifts, remains undercapitalized with 37 cents for every $100 of insured deposits at the end of June.

“The SAIF continues to be significantly underfunded, and this problem must be addressed before thrift premiums can be lowered,” Helfer said.