Magazine article American Banker

Merger of Bank, Thrift Insurance Funds Is in Best Long-Term Interests of All

Magazine article American Banker

Merger of Bank, Thrift Insurance Funds Is in Best Long-Term Interests of All

Article excerpt

The Clinton administration recently revealed its decision to seek a merger of bank and thrift regulatory functions into a single, independent agency, as the cornerstone of its legislative agenda for banking next year.

Given this agenda, the time has come for banks and thrifts to begin talks on another potential merger between the Bank Insurance Fund and the Savings Association Insurance Fund.

Thrifts support regulatory consolidation but worry that they could be second-class citizens in a new, bank-dominated agency. Thrifts are concerned, above all, about the prospect of paying significantly higher premiums than banks will pay for deposit insurance.

The premium disparity arises from a congressional requirement that surviving thrifts divert close to $800 million of their premiums each year to pay the interest on Financing Corp. bonds.

Question of Premiums

A formal merger of the funds would spread the FICO burden to bank fund members. For obvious reasons, then, thrifts focus on the deposit premium issue and on the advantages of a merger of the two insurance funds.

But banks, too, stand to gain from such a merger, and it is in their interest to help thrifts overcome this competitive disadvantage, although terms acceptable to bankers would need to be negotiated.

A merger of the funds could set the stage for a much more immediate reduction of deposit insurance premiums than is now likely.

Some bankers have already discussed the possibility of pledging assets to the bank fund that would bring it to the required 1. …

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