Magazine article American Banker

Bank Board Plans to Introduce New Version of Risk-Based Deposit Insurance

Magazine article American Banker

Bank Board Plans to Introduce New Version of Risk-Based Deposit Insurance

Article excerpt

WASHINGTON -- The Federal Home Loan Bank Board is gearing up to introduce a version of risk-based deposit insurance that would assess additional premiums for any venture outside the mortgage lending business.

The agency's staff is drafting legislation that Bank Board Chairman Edwin J. Gray plans to ask a member of the House Banking Committee to introduce in Congress. The draft is expected to be ready in the next couple of weeks, according to a Bank Board staff member.

The Bank Board feels that its deposit insurance system needs to be updated to accommodate the changing thrift environment as associations branch into activities such as commercial lending, according to a source. It is not that commercial lending is considered necessarily more risky than mortgage lending. But commercial lending is not where the thrift's traditional expertise lies.

The idea of risk-based insurance, which has been studied by both the Bank Board and the Federal Deposit Insurance Corp., has been controversial. Detractors of the plan charge that it would be impossible to devise an equitable, nationwide formula for assessing the risk of various activities, and many proponents of the idea acknowledge the difficulty there.

The Bank Board appears hopeful of circumventing some of the controversy by simply stating that anything outside the thrift's traditional role as residential lender carries some additional liability for the Federal Savings and Loan Insurance Corp. that should be taken into account. …

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