Consumers Will Feel Higher Bank Premiums in Fees, Interest Rates

THE JOURNAL RECORD, September 28, 1990 | Go to article overview

Consumers Will Feel Higher Bank Premiums in Fees, Interest Rates


NEW YORK (AP) - Bank customers could pay higher fees or receive lower interest on their savings to help make up for the 60 percent increase in bank insurance premiums mandated by regulators, industry analysts said Thursday.

The insurance increase also could reduce profits in an already-troubled industry, the analysts said.

But they added that the higher premiums for 1991 announced Thursday were necessary to ensure the health of the banking system.

``The FDIC (Federal Deposit Insurance Corp.) needs the money,'' said Christopher Mahoney, an analyst at Moody's Investors Service. ``The soundness of the FDIC is important.''

Analysts believe many banks will try to pass on to customers some of the premium increase in the form of higher fees for checking accounts, bounced checks and other services. Banks also may try to lower the interest they pay on savings accounts, certificates of deposit and other investments.

Under the increase, banks will pay the FDIC 19.5 cents in insurance for each $100 in deposits starting next year. Currently, they pay 12 cents per $100 in deposits.

If banks were to pass on to customers the full amount of the 7.5 cent increase, a customer with $10,000 in his savings account would lose $7.50 over a year, disregarding compounding.

But such moves could be met with resistance and loss of customers, analysts said.

``It's pretty hard to gouge the customer when the customer has other alternatives,'' said Eric Hemel of the investment firm First Boston Corp. He said savers could put their money in mutual funds or other investments.

That means banks may be forced to absorb some or all of the insurance increase, which could affect their earnings and be especially troubling to weaker institutions.

``Revenues at banks are not growing robustly, so any increase in expenses is going to hurt,'' said Cheryl Swaim of the investment firm Oppenheimer & Co. She estimated the higher premiums could lower overall bank profits by 2 percent to 3 percent. …

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