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

GAO discussed the potential premium rate disparity between banks and thrifts. GAO noted that: (1) a premium rate disparity of 19.5 basis points will occur if the Federal Deposit Insurance Corporation (FDIC) reduces banks' premiums when the Bank Insurance Fund (BIF) is recapitalized in 1995; (2) the Savings Association Insurance Fund (SAIF) will remain undercapitalized until 2002 and will face increased exposure when it assumes responsibility in July 1995 for resolving troubled thrifts, whose failure rate is uncertain; (3) the use of SAIF premiums to pay bond interest has delayed SAIF capitalization and could cause a continuing premium disparity after capitalization because of the shrinking deposit base; (4) FDIC may have to increase the SAIF premium to cover its bond interest obligations if the deposit base continues to shrink; (5) the BIF rate reduction's impact on thrifts is difficult to estimate because banks' and thrifts' responses are unknown; (6) thrifts face increased costs from the premium disparity; (7) thrifts may replace deposits with other funding sources or obtain bank charters to reduce their costs, which could further decrease the SAIF assessment base, increase the premium differential, and hamper payment of bond interest; and (8) policy options to address the rate differential include doing nothing, merging BIF and SAIF, shifting some capitalization costs or bond interest payments to either BIF members or taxpayers, or changing the law governing the availability of SAIF premiums to pay bond interest.