Is it a bank? Is it a thrift? It's a colossal flanking maneuver.

Not too long ago. the reduction of Bank Insurance Fund premiums appeared to be a "slam dunk." Recapitatization was nearly complete. and, as FDIC proposed a rate cut banks cheered and thrills moaned

Now it appears there will be more slamming and less dunking than bankers initially counted on. That's because several large savings institutions devised a controversial maneuver to escape the disparity between what banks and thrifts pay for deposit insurance. The impact this will have on BIF premiums remains to be seen, though an answer, or at least a hint, will be contained in FDIC's final rule on BIF assessments, which some expect to see early in May.

Rise of the "nonthrift thrills"

The thrifts' gambit is simple in principle, complex in execution, and being taken very seriously by ABA.

A handful of the savings institutions have applied for regulatory approval for founding commercial bank affiliates. As BIF-insured institutions, these proposed affiliates would enjoy banks' lower premiums. Customers would be encouraged-through pricing and other techniques--to move deposits to the banking affiliate. In this way, they would avoid the deposit-insurance penalties that apply to legitimate thrift-bank conversions.

By mid-March, six SAIF-insured thrifts accounting for $80 billion in deposits had already announced intentions to form banking affiliates. FDIC Chairman Ricki Heifer acknowledged in a speech that the savings institutions "born-again" thrifts, in her words--had managed to "change the terms of the debate."

"Not too long ago," Heifer said, "we thought we had plenty of time to deal with the SAIF/FICO problem-- months to craft a solution, years until the situation became critical." (See, "What's the fuss about FICO?")

Instead, the thrifts' proposed "conversions" carry a double whammy.

First, they would shrink the pool of deposits subject to SAIF assessment and available for FICO debt service.

Second, they would increase the amount of deposits that BIF has to insure--and thus potentially postpone the reductions in premiums banks now expect.

In testimony, ABA has cried foul.: "If these S&Ls were simply sold to a bank, the bank would continue to have the responsibility to pay SAIF assessments. Thus, such actions by S&Ls would lead to an incredible anomaly. Banks which acquire S&L deposits would continue to support SAIF, but S&Ls, themselves, will have found a method to avoid supporting SAIF."