Just as many feared, the unexpected death last month of highly regarded William Taylor, 53, head of the Federal Deposit Insurance Corp., has left the weakened FDIC board vulnerable to political and industry pressures. As a result, the board this week scaled back the higher premiums it had planned to charge banks to strengthen the bankrupt FDIC insurance fund.
Last May, Taylor cast the deciding vote in a 3-2 tentative decision to raise premiums an average of 22 percent. The higher fees are needed to replenish the bankrupt FDIC fund that protects depositors when banks fail. Because of nearly 900 bank failures since 1986, the fund has fallen $7 billion in the red and has had to borrow from the U.S. Treasury.If this sounds like the savings and loan disaster, it is - although on a smaller scale. But the potential is there for an even bigger bailout since there are some 1,000 "troubled" banks in the United States with $600 billion in assets.
In the face of this problem, Taylor and others had argued for another increase in the premiums banks pay, even though such premiums already had been tripled from 8 cents per $100 of deposits to 23 cents per $100. With Taylor gone, the remaining board members raised premiums only on the most troubled banks and passed over the well-run institutions.
Ordinarily, that would be a sound policy. It rewards the best- run banks and makes the riskier ones pay more. Over the long haul, it will discourage bank failures. But in the meantime, the FDIC fund needs to be replenished by higher fees across the board.
Those opposing the raise argued against burdening banks with higher costs during a credit crunch. That is a legitimate concern. Yet with industry earnings over $8 billion in the second quarter of this year alone, this would have been a good time to act. Instead, the banks best able to pay have escaped with no fee hike at all.
Banks generally are doing better, but the crisis is not over. The S&L disaster showed the need to act early. This basic truth should not be obscured by heavy lobbying and retreats from fiscal preparedness just because it's an election year.