How safe are US savings accounts?

Federal "insurance" reserves for US savings accounts today have dropped to one of the lowest levels -- if not them lowest -- in banking history. What this means is that the Federal Deposit Insurance Corporation (FDIC) has only slightly over $1 to insure each $100 in US savings deposits.

A dramatic drop in the ratio between insurance reserves and savings was caused largely by the sudden expansion this year of deposit insurance for individuals to $100,000 by the FDIC, a quasi-independent agency.

Total FDIC reserves now total about $10 billion.

The FDIC is not alone in its limited level of insurance protection:

* At the Federal Savings and Loan Insurance Corporation (FSLIC), which insures savings and loan associations, the agency's $6 billion in reserves also equals only about $1 per $100 of deposits.

* At the National Credit Union Association (NCUA), which insures credit unions, there is only about 35 cents in insurance reserves available per $100 of deposits.

The drop in reserve levels raises the question: Could Americans one day again lose their life savings -- as happened to thousands of depositors back in the 1930s?

Banking officials, as well as federal bank regulators, insist that the situation is unlikely. On the other hand, there is little secrecy here regarding the long-range concern of financial regulators about the well-being of the US banking system:

* Earlier this year, the federal government and some 22 banks scrambled to put together a quick financial package to rescue Philadelphia's First Pennsylvania Bank, the city's largest bank.

* In March, federal officials arranged a takeover of an insolvent Cleveland savings and loan association.

* Scores of banks, especially a number of hard-pressed savings banks in the New York area, have been facing difficult financial problems because of recession and soaring interest rates this year.

* Multibillion-dollar loans to shaky, third-world nations by some of the largest US banks have fueled concerns about a collapse of the banking system.

The new monetary control law -- officially known as the Depository Institutions Deregulation and Monetary Control Act of 1980 -- more than doubled insurance protection for savers from $40,000 to $100,000. But that was done, critics note, without any significant increase in the funding for the regulatory agencies.

Federal officials insist that there is little danger that a simultaneous collapse of several large banks could deplete FDIC insurance. "We have absolutely no concern at all about the safety of bank deposits in this country," says a very high official of the FDIC.

Most outside analysts would tend to agree; but with an important proviso: If there were ever to be a crash of several major banks, the quasi-independent FDIC (which now receives no federal appropriations at all, but relies on member bank assessments) would likely have to turn to Congress for a quick infusion of insurance funds.

"If the government is going to prop up a failing US automaker [Chrysler], then it is not going to let the banking system collapse," argues Stuart Greenbaum, director of the Banking Research Center at Northwestern University in Evanston, Ill.

Mr. Greenbaum, while not concerned about the stability of the insurance program, does concede that it is somewhat "cosmetic" in nature because of its limited reserves.

Inclusion of the $100,000 insurance provision in the monetary decontrol legislation earlier this year was in part a result of hard (and last-minute) bargaining by savings and loan officials eager to hang on to holders of "jumbo" certificates of deposit of $100,000 or more.

But at the same time, argues Rep. Ron Paul (R) of Texas, a severe critic of the new act, the increase is a "symbolic recognition" by federal officials of the pervasiveness of double-digit inflation within the US economy.

There will be no future "bank run" as in the 1930s, argues Congressman Paul. Instead, he suggests, depositors will "lose" in the sense that "the value of their assets" will be continuously ravaged by inflation.

Federal officials here insist that the real issue is not whether there is adequate insurance. Rather, they say, it is to what extent there is effective supervision of the banking system itself.

Of the 14,000 or so commercial banks in the United States, 4,500 are "national" banks -- chartered and regulated by the US government, rather than a state government. Of these 4,500 national banks, roughly 1,100 account for close to 80 percent of all bank assets in the US.

Currently, there are some 2,600 bank regulators to monitor these 4,500 banks -- a workable ratio of at least one official for every two banks, and a higher ratio for the 1,100 largest banks.

Within the banking system, moreover, officials keep a wary eye on "problem" banks. The list is periodically updated, and at the end of 1979 totaled 289 banks. But that figure is not considered excessive, given the large number of banks in the US.

Banking officials delight in noting that since the Great Crash of the early 1930s, no depositor in an insured bank has lost one cent on an account covered by federal insurance.

Moreover, something like 98 percent or so of uninsured accounts have also been paid back. During 1979 for example, the FDIC paid out close to $13 million to depositors of three banks.

In fact, agency officials note, in most cases (the agency dealt with 10 failed banks in 1979), the government will arrange for an assumption (takeover) of a failed bank by a healthy bank, rather than directly step in and make deposit payments.

All the same, many critics here -- usually privately -- continue to ask the one nagging question that federal officials prefer not to talk about: What insurance reserves would be available in case of a massive default of the US banking system?

Next: the Monetary Control Act of 1980 -- "Big Brother" comes to the banking system?