The House Banking Committee rejected a bid by banks to force the thrift industry to pay a deposit insurance differential for three more years, even though legislation was passed in 1996 that would end it at year-end.

A provision extending the differential was included in financial modernization legislation passed by the Senate Banking Committee March 4, but it failed to pass the House Banking Committee March 11 during its markup. A proposal by Rep. Richard Baker, R-La., would have exempted banks with less than $100 million in assets from paying the surcharge imposed on banks, but it was defeated. Under the bill passed in 1996, premiums would be equalized at 2.3 basis points effective Jan. 1, 2010.

The House banking panel voted 29-30 Thursday to reject an amendment that would have eliminated a provision now in the bill that bars chartering of new unitary thrifts and restricts sale of existing ones. An amendment to restore full grandfathering rights to existing institutions passed Thursday 29-26. That provision, proposed by Rep. Kent Bentsen, D-Texas, is comparable to the Senate bill and would allow acquirers of existing unitary thrifts to retain all powers associated with the current charter.

The issue deals with the interest payments on Financing Corporation (FICO) bonds. These were issued in 1987 to finance the bailout of insolvent thrifts. But, the funds provided through the bonds were not nearly enough to bail out the industry, and the whole thrift deposit system was revamped in 1989 when the government assumed the lion’s share of paying for the bailout. However, under the 1989 bill, nearly half of all SAIF premium assessments were diverted to pay the interest on the FICO bonds.

In 1996, given that 40% of thrift deposits were owned by banks, an agreement was reached to reduce the competitive disadvantage thrifts faced in paying premiums of 23 basis points while banks paid 1.25 basis points. The banks agreed to assume some of the burden as of Jan. 1, 2010. But to get banks to do this, thrifts agreed to make extraordinary, one-time payments totaling $4.5 billion, plus pay a disparate premium, albeit reduced, for three more years.

But the issue was reopened several months ago at the request of the American Bankers Association, which argued that under the current deal, Bank Insurance Fund members are being squeezed.