Deposit Insurance Funds: Analysis of Insurance Premium Disparity Between Banks and Thrifts

GAO discussed the premium rate disparity between banks and thrifts that will develop when the Federal Deposit Insurance Corporation (FDIC) reduces the premium rates that member institutions pay to the Bank Insurance Fund (BIF). GAO noted that: (1) a major premium rate disparity between banks and thrifts will develop in late 1995 after BIF is recapitalized; (2) the Savings Association Insurance Fund (SAIF) will remain undercapitalized for the next few years and faces exposure from troubled thrifts, since it has assumed responsibility for resolving problem thrifts from the Resolution Trust Corporation; (3) using SAIF premiums to help resolve the thrift crisis has delayed SAIF capitalization; (4) SAIF shrinking deposit base could result in a continuing major premium disparity between banks and thrifts after SAIF is capitalized in 2002; (5) the premium differential will increase thrift costs and its duration will determine its impact, which will be most severe for thrifts with low earnings and capital; (6) thrifts may replace deposits with nondeposit sources of funding in order to reduce their costs relative to banks; and (7) thrifts are considering obtaining bank charters to lower deposit insurance fees that could further shrink SAIF deposit base and affect members' ability to pay bond interest.