The Federal Home Loan Bank Board is weighing an increase in insurance premiums paid by savings and loan associations of up to 150 percent to replenish the trust fund protecting savers' deposits.
Drained by costly failures and mergers in 1984, that fund's reserves now stand at less than 1 percent of insured deposits, a historic low level that has prompted concern on the part of the board.
In a Dec. 28 letter to Federal Home Loan Banks around the country, the board said it expected "in the near future to consider very seriously the question of an additional special assessment of one-eighth percent of deposits over and above the annual one-twelfth percent premium." It would mean raising the current premiums of $633 million annually on insured deposits of $760 billion to as much as $1.58 billion. It would also mark the first time the board has ever considered it necessary to use its power to raise premiums above the one-twelfth percent set by Congress.
That would place a "big burden" on the nation's thrifts, according to Dennis Jacobe, an economist with the U.S. League of Savings Institutions. He estimates that S&Ls' earnings during 1984 amounted to $1.5 billion plus $600 million ceded to them from Federal Home Loan Mortgage Co. profits. In other words, three-quarters of the institutions' 1984 earnings would go to pay federal deposit insurance.
About one-quarter of the nation's S&Ls are operating in the red. An increased insurance assessment would be payable whether or not the institutions were losing money.
Such an increase would come at the same time the board has proposed that savings and loans rebuild their capital bases. Institutions would have to raise their net worth as a percent of new deposits, with the maximum being a 5 percent net worth requirement on growth of more than 25 percent a year. Thus, the fastest growing S&Ls would be hardest hit by both proposals.
The S&L industry as a whole has a regulatory net worth of 4 percent on paper, but board Chairman Edwin Gray admitted last month that savings and loans have virtually no tangible net worth. Moreover, he said the trust fund's ratio of reserves to insured deposits had dropped to 0.92 percent. If no moves were made to shore up the ratio, he predicted it would dip to one-half of 1 percent by 1988.
At the end of 1983, the Federal Savings & Loan Insurance Corp. had $6.4 billion in reserves to insure individual deposits of up to $100,000. No figures have been released for last year, but industry sources said the reserves have decreased by between $300 million and $1 billion. During 1984, the FSLIC liquidated nine S&Ls and engineered 17 mergers or acquisitions. Although it has not released the cost of assistance in these failures, industry sources put it at between $1 billion and $2 billion. The two most expensive takeovers involved San Marino Savings and Loan in California, for which the FSLIC has acknowledged putting out $193 million, and Empire Savings and Loan in Mesquite, Tex., which trade publications list as a $160 million bailout.
The 26 failed S&Ls represent fewer than 1 percent of all the federally insured S&Ls in the country. Yet the other 99 percent have to bear the burden for their past mistakes. Jacobe of the U.S. League of Savings Institutions remarked that if assessments were increased by the full amount permitted under the law, the debate about risk-based premiums would almost certainly heat up. The idea of making depository institutions pay insurance according to how much risk they take, rather than imposing one rate for all, has been endorsed by Bank Board Chairman Gray and FDIC Chairman William Isaac, and may be the subject of legislation in the next Congress.