Deposit Insurance Funds:
Analysis of Insurance Premium Disparity Between Banks and Thrifts
AIMD-95-84, Mar 3, 1995
Pursuant to a congressional request, GAO reviewed the Federal Deposit Insurance Corporation's (FDIC) proposed reduction of bank insurance premiums once the Bank Insurance Fund (BIF) is recapitalized, focusing on: (1) the likelihood, potential size, and timing of a premium rate differential between banks and thrifts; (2) the possible effects of the premium rate differential on the two industries; (3) the potential adverse effects on the Savings Association Insurance Fund (SAIF); and (4) various policy options to avoid a premium rate differential between BIF and SAIF members.
GAO found that: (1) BIF is expected to be fully capitalized during 1995 and FDIC has proposed reducing bank premiums as early as September 1995; (2) SAIF will not be fully capitalized for another 7 years because SAIF premiums are also used to pay the Financing Corporation's (FICO) bond interest; (3) a rate differential of about 19 basis points could exist for up to 24 years; (4) SAIF capitalization may be delayed or thrift insurance premiums may have to be increased if thrift failures increase and the deposit base for FICO payments continues to decline; (5) the SAIF deposit base has declined by 25 percent since 1989 and the portion of the deposit base available for FICO payments has declined by 48 percent; (6) there is no reliable data to predict banks' and thrifts' responses to a premium rate differential; (7) banks could pass some of the savings from reduced premiums to customers by increasing deposit interest rates and improving customer services, while thrifts would incur increased costs of up to 10 percent to remain competitive with banks; and (8) policy options to mitigate rate differential problems include taking no action, merging BIF and SAIF, requiring BIF and SAIF members to share FICO bond interest costs proportionally, using BIF premiums or all SAIF resources to pay FICO bond interest, and using appropriated funds to capitalize SAIF or fund FICO bond interest.