9266 Federal Register / Vol. 60, No. 32 / Thursday, February 16, 1995 / Proposed Rules
1 Currently, there is no recapitalization schedule
for the SAIF mandated by statute. However, as of
January 1, 1998, the Board is required to promulgate
a recapitalization schedule that achieves the
designated reserve ratio within 15 years, except that
the Board may extend the recapitalization date to
one which ‘‘will, over time, maximize the amount
of semiannual assessments received by the SAIF,
net of insurance losses incurred by the Fund’’.
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN—3064–AB59
Assessments; Retention of Existing
Assessment Rate Schedule for SAIF
Member Institutions
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Proposed rule.
SUMMARY: Based upon the results of its
semiannual review of the
recapitalization of the Savings
Association Insurance Fund (SAIF) and
of the SAIF assessment rates, the Board
of Directors of the FDIC (Board)
proposes to retain the existing
assessment rate schedule applicable to
SAIF-member institutions. The effect of
this proposal would be that the SAIF
assessment rate to be paid by SAIF
members would continue to range from
23 cents per $100 of domestic deposits
to 31 cents per $100 of domestic
deposits, depending on risk
classification. Through this proposed
rulemaking, the FDIC is soliciting
comments on all aspects of its proposal
to retain the existing assessment rate
schedule applicable to SAIF-member
institutions.
DATES: Written comments must be
received by the FDIC on or before April
17, 1995.
ADDRESSES: Written comments shall be
addressed to the Office of the Executive
Secretary, Federal Deposit Insurance
Corporation, 550 17th Street, N.W.,
Washington, D.C. 20429. Comments
may be hand-delivered to Room F–400,
1776 F Street, N.W., Washington, D.C.,
on business days between 8:30 a.m. and
5:00 p.m. (FAX number: 202/898–3838).
Comments will be available for
inspection in Room 7118, 550 17th
Street, N.W., Washington, D.C. between
9:00 a.m. and 4:30 p.m. on business
days.
FOR FURTHER INFORMATION CONTACT:
James R. McFadyen, Senior Financial
Analyst, Division of Research and
Statistics (202/898–7027), Federal
Deposit Insurance Corporation,
Washington, D.C. 20429.
SUPPLEMENTARY INFORMATION:
I. Background: SAIF Assessment Rates
Section 7(b) of the Federal Deposit
Insurance Act (FDI Act) (12 U.S.C.
1817(b)) requires that, if the SAIF
reserve ratio is below the designated
reserve ratio of 1.25 percent, the FDIC
shall set assessments to increase the
reserve ratio to the designated reserve
ratio.1 Section 7(b) of the FDI Act also
requires a minimum SAIF assessment
that is at least as much as would be
raised by an average assessment rate of
18 basis points. The minimum
assessment requirement is in effect as
long as the SAIF is not fully capitalized
or has outstanding borrowings under
section 14 of the FDI Act. If either of
these two conditions exists as of January
1, 1998, the minimum assessment
requirement increases to a rate of 23
basis points.
In order to achieve SAIF
recapitalization, the FDIC Board of
Directors (Board) adopted a risk-related
assessment matrix in September 1992
(see Table 1) which has remained
unchanged. Previously, in deciding
against changes in the SAIF assessment
rate, the Board has considered the
SAIF’s expected operating expenses,
case resolution expenditures and
income under a range of scenarios. The
Board also has considered the effect of
an increase in the assessment rate on
SAIF members’ earnings and capital.
When first adopted, the assessment rate
schedule yielded a weighted average
rate of 25.9 basis points. With
subsequent improvements in the
industry and the migration of
institutions to lower rates within the
assessment matrix, the average rate has
declined to 24 basis points (based on
risk-based assessment categories as of
January 1, 1995 and the assessment base
as of September 30, 1994—see Table 2).
TABLE 1.—SAIF-MEMBER ASSESS-
MENT RATE SCHEDULE FOR THE
FIRST SEMIANNUAL ASSESSMENT
PERIOD OF 1995
[Basis points]
Capital group
Supervisory sub-
group
A B C
Well capitalized ............. 23 26 29
Adequately capitalized .. 26 29 30
Undercapitalized ........... 29 30 31
TABLE 2.—SAIF-MEMBER ASSESSMENT RATE DISTRIBUTION AS OF SEPTEMBER 30, 1994*
[Billions of dollars]
Capital group
Supervisory subgroup
A B C
Amount Per-
cent Amount Per-
cent Amount Per-
cent
Well capitalized ........................................................ Number .............................. 1,585 85.6 139 7.5 35 1.9
Assets ................................ $526.5 70.7 $109.9 14.8 $20.4 2.7
Base ................................... 386.6 72.3 74.5 13.9 15.3 2.9
Adequately capitalized ............................................. Number .............................. 28 1.5 34 1.8 21 1.1
Assets ................................ $25.5 3.4 $22.0 3.0 $32.9 4.4
Base ................................... 15.7 2.9 15.9 3.0 21.5 4.0
Under capitalized ..................................................... Number .............................. 0 0.0 0 0.0 10 0.5
Assets ................................ $0.0 0.0 $0.0 0.0 $7.4 1.0
Base ................................... 0.0 0.0 0.0 0.0 5.7 1.1
*‘‘Base’’ is the amount of deposits subject to SAIF assessments.
The primary source of funds for the
SAIF is assessment revenue from SAIF-
member institutions. Since the creation
of the fund and through the end of 1992,
however, all assessments from SAIF-
member institutions were diverted to
1 Currently, there is no recapitalization schedule
for the SAIF mandated by statute. However, as of
January 1, 1998, the Board is required to promulgate
a recapitalization schedule that achieves the
designated reserve ratio within 15 years, except that
the Board may extend the recapitalization date to
one which ‘‘will, over time, maximize the amount
of semiannual assessments received by the SAIF,
net of insurance losses incurred by the Fund’’.
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN—3064–AB59
Assessments; Retention of Existing
Assessment Rate Schedule for SAIF
Member Institutions
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Proposed rule.
SUMMARY: Based upon the results of its
semiannual review of the
recapitalization of the Savings
Association Insurance Fund (SAIF) and
of the SAIF assessment rates, the Board
of Directors of the FDIC (Board)
proposes to retain the existing
assessment rate schedule applicable to
SAIF-member institutions. The effect of
this proposal would be that the SAIF
assessment rate to be paid by SAIF
members would continue to range from
23 cents per $100 of domestic deposits
to 31 cents per $100 of domestic
deposits, depending on risk
classification. Through this proposed
rulemaking, the FDIC is soliciting
comments on all aspects of its proposal
to retain the existing assessment rate
schedule applicable to SAIF-member
institutions.
DATES: Written comments must be
received by the FDIC on or before April
17, 1995.
ADDRESSES: Written comments shall be
addressed to the Office of the Executive
Secretary, Federal Deposit Insurance
Corporation, 550 17th Street, N.W.,
Washington, D.C. 20429. Comments
may be hand-delivered to Room F–400,
1776 F Street, N.W., Washington, D.C.,
on business days between 8:30 a.m. and
5:00 p.m. (FAX number: 202/898–3838).
Comments will be available for
inspection in Room 7118, 550 17th
Street, N.W., Washington, D.C. between
9:00 a.m. and 4:30 p.m. on business
days.
FOR FURTHER INFORMATION CONTACT:
James R. McFadyen, Senior Financial
Analyst, Division of Research and
Statistics (202/898–7027), Federal
Deposit Insurance Corporation,
Washington, D.C. 20429.
SUPPLEMENTARY INFORMATION:
I. Background: SAIF Assessment Rates
Section 7(b) of the Federal Deposit
Insurance Act (FDI Act) (12 U.S.C.
1817(b)) requires that, if the SAIF
reserve ratio is below the designated
reserve ratio of 1.25 percent, the FDIC
shall set assessments to increase the
reserve ratio to the designated reserve
ratio.1 Section 7(b) of the FDI Act also
requires a minimum SAIF assessment
that is at least as much as would be
raised by an average assessment rate of
18 basis points. The minimum
assessment requirement is in effect as
long as the SAIF is not fully capitalized
or has outstanding borrowings under
section 14 of the FDI Act. If either of
these two conditions exists as of January
1, 1998, the minimum assessment
requirement increases to a rate of 23
basis points.
In order to achieve SAIF
recapitalization, the FDIC Board of
Directors (Board) adopted a risk-related
assessment matrix in September 1992
(see Table 1) which has remained
unchanged. Previously, in deciding
against changes in the SAIF assessment
rate, the Board has considered the
SAIF’s expected operating expenses,
case resolution expenditures and
income under a range of scenarios. The
Board also has considered the effect of
an increase in the assessment rate on
SAIF members’ earnings and capital.
When first adopted, the assessment rate
schedule yielded a weighted average
rate of 25.9 basis points. With
subsequent improvements in the
industry and the migration of
institutions to lower rates within the
assessment matrix, the average rate has
declined to 24 basis points (based on
risk-based assessment categories as of
January 1, 1995 and the assessment base
as of September 30, 1994—see Table 2).
TABLE 1.—SAIF-MEMBER ASSESS-
MENT RATE SCHEDULE FOR THE
FIRST SEMIANNUAL ASSESSMENT
PERIOD OF 1995
[Basis points]
Capital group
Supervisory sub-
group
A B C
Well capitalized ............. 23 26 29
Adequately capitalized .. 26 29 30
Undercapitalized ........... 29 30 31
TABLE 2.—SAIF-MEMBER ASSESSMENT RATE DISTRIBUTION AS OF SEPTEMBER 30, 1994*
[Billions of dollars]
Capital group
Supervisory subgroup
A B C
Amount Per-
cent Amount Per-
cent Amount Per-
cent
Well capitalized ........................................................ Number .............................. 1,585 85.6 139 7.5 35 1.9
Assets ................................ $526.5 70.7 $109.9 14.8 $20.4 2.7
Base ................................... 386.6 72.3 74.5 13.9 15.3 2.9
Adequately capitalized ............................................. Number .............................. 28 1.5 34 1.8 21 1.1
Assets ................................ $25.5 3.4 $22.0 3.0 $32.9 4.4
Base ................................... 15.7 2.9 15.9 3.0 21.5 4.0
Under capitalized ..................................................... Number .............................. 0 0.0 0 0.0 10 0.5
Assets ................................ $0.0 0.0 $0.0 0.0 $7.4 1.0
Base ................................... 0.0 0.0 0.0 0.0 5.7 1.1
*‘‘Base’’ is the amount of deposits subject to SAIF assessments.
The primary source of funds for the
SAIF is assessment revenue from SAIF-
member institutions. Since the creation
of the fund and through the end of 1992,
however, all assessments from SAIF-
member institutions were diverted to
9267Federal Register / Vol. 60, No. 32 / Thursday, February 16, 1995 / Proposed Rules
2 From 1989 through 1992, more than 90 percent
of SAIF assessment revenue went to the FSLIC
Resolution Fund (FRF), the Resolution Funding
Corporation (REFCORP) and the Financing
Corporation (FICO).
other needs as required by the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA).2
Only assessment revenue generated
from Bank Insurance Fund (BIF)
member institutions that acquired SAIF-
insured deposits under section 5(d)(3) of
the FDI Act (12 U.S.C. 1815(d)(3)) (so-
called ‘‘Oakar’’ banks) was deposited in
the SAIF throughout this period.
SAIF-member assessment revenue
began flowing into the SAIF on January
1, 1993. However, the Financing
Corporation (FICO) has a priority claim
on SAIF-member assessments in order
to service FICO bond obligations. Under
existing statutory provisions, FICO has
assessment authority through 2019, the
maturity year of its last bond issuance.
At approximately $779 million per year,
the FICO draw is substantial,
representing nearly 45 percent of
estimated assessment revenue for 1995,
or 11 basis points of the average
assessment rate of 24 basis points. The
SAIF had a balance of $1.8 billion
(unaudited) on December 31, 1994. With
primary resolution responsibility
residing with the Resolution Trust
Corporation (RTC), there have been few
demands on the SAIF, but the authority
of the RTC to place failed thrifts in
conservatorship or establish
receiverships expires June 30, 1995.
In addition to assessment revenues
and investment income, there are at
least two other potential sources of
funds for the SAIF. First, the FDIC has
a $30 billion line of credit available
with the Department of the Treasury
(Treasury) for deposit insurance
purposes, although the SAIF has
required no extension of credit. Second,
the Resolution Trust Corporation
Completion Act (RTCCA) authorized the
appropriation of up to $8 billion in
Treasury funds to pay for losses
incurred by the SAIF during fiscal years
1994 through 1998, to the extent of the
availability of appropriated funds and
provided that certain certifications are
made to the Congress by the Chairman
of the FDIC. Among these, the Chairman
must certify that the FDIC Board has
determined that:
(1) SAIF members are unable to pay
additional semiannual assessments at the
rates required to cover losses and to meet the
repayment schedule for any amount
borrowed from the Treasury for insurance
purposes under the FDIC’s line of credit
without adversely affecting the SAIF
members’ ability to raise capital or to
maintain the assessment base; and
(2) An increase in assessment rates for
SAIF members to cover losses or meet any
repayment schedule could reasonably be
expected to result in greater losses to the
Government.
The RTC’s resolution activities and
the thrift industry’s substantial
reduction of troubled assets in recent
years have resulted in a relatively sound
industry as the July 1, 1995 date for
SAIF resolution responsibility
approaches. However, with a balance of
$1.8 billion beginning 1995, the SAIF
does not have a large cushion with
which to absorb the costs of thrift
failures. The FDIC has significantly
reduced its projections of failed-thrift
assets for 1995 and 1996, but the failure
of a single large institution or an
economic downturn leading to higher
than anticipated losses could render the
fund insolvent.
Furthermore, there may soon be a
substantial differential between BIF and
SAIF premiums. The BIF is expected to
be recapitalized during 1995, at which
time BIF premiums can be reduced far
below current levels. Largely due to the
FICO obligation, the SAIF is not likely
to be recapitalized until 2002 (this
projection is discussed below in section
III). A premium differential may have
adverse consequences for SAIF
members, including reduced earnings
and an impaired ability to raise funds in
the capital markets. Among the weakest
thrifts, this differential could result in
competitive pressures that would lead
to additional failures. An analysis over
a five year time span suggests that any
such increase in failures is likely to be
sufficiently small as to be manageable
by the SAIF under current interest-rate
and asset quality conditions. Moreover,
the analysis indicates that under harsher
interest-rate and asset-quality
assumptions, these economic factors
would have a significantly greater effect
on SAIF-member failure rates than
would a premium differential.
While the premium differential is not
expected to lead to significant failures
in the near term, it may lead to other
adverse results. A premium differential
would also create a powerful incentive
for SAIF-insured institutions to
minimize premium costs by shrinking
the base against which assessments are
levied (currently domestic deposits).
This can be accomplished, despite the
moratorium on conversions of SAIF-
insured deposits to BIF-insured deposits
at these institutions, by substituting
nondeposit liabilities for SAIF-insured
deposits. These nondeposit liabilities
are readily available and include
Federal Home Loan Bank (FHLB)
advances and reverse repurchase
agreements. The net result could be an
acceleration of the shrinkage of the
assessment base, thereby reducing
assessment revenue. This could threaten
the ability to service the FICO obligation
sometime near or after the year 2000
and, over the longer term, frustrate the
capitalization of the SAIF. As shown in
the following table, the assessment base
has been declining steadily since the
fund was established in 1989, although
the decline was at a slower rate in 1994.
TABLE 3.—SAIF ASSESSMENT BASE AND INSURED DEPOSITS*
[Dollar amounts in billions]
Assessment base Percent change Est. Insured de-
posits Percent change
1989 .................................................................................. $950.3 $882.9 6.0
1990 .................................................................................. 877.7 ¥7.6 830.0 ¥6.0
1991 .................................................................................. 820.2 ¥6.5 776.4 ¥6.5
1992 .................................................................................. 760.5 ¥7.3 729.5 ¥6.0
1993 .................................................................................. 729.4 ¥4.1 695.6 ¥4.6
1994 .................................................................................. 716.3 ¥1.8 687.3 ¥1.2
*Includes conservatorships and Sasser institutions; adjusted for Oakar deposits. End-of-period domestic deposits are used to approximate the
SAIF assessment base. The actual assessment base may be slightly less than domestic deposits due to float adjustments, but period-to-period
changes should be similar. Table 3 presents end-of-period figures (the comparable table in earlier proposals used averages) to reflect the quar-
terly billing system which becomes effective the second quarter of 1995.
2 From 1989 through 1992, more than 90 percent
of SAIF assessment revenue went to the FSLIC
Resolution Fund (FRF), the Resolution Funding
Corporation (REFCORP) and the Financing
Corporation (FICO).
other needs as required by the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA).2
Only assessment revenue generated
from Bank Insurance Fund (BIF)
member institutions that acquired SAIF-
insured deposits under section 5(d)(3) of
the FDI Act (12 U.S.C. 1815(d)(3)) (so-
called ‘‘Oakar’’ banks) was deposited in
the SAIF throughout this period.
SAIF-member assessment revenue
began flowing into the SAIF on January
1, 1993. However, the Financing
Corporation (FICO) has a priority claim
on SAIF-member assessments in order
to service FICO bond obligations. Under
existing statutory provisions, FICO has
assessment authority through 2019, the
maturity year of its last bond issuance.
At approximately $779 million per year,
the FICO draw is substantial,
representing nearly 45 percent of
estimated assessment revenue for 1995,
or 11 basis points of the average
assessment rate of 24 basis points. The
SAIF had a balance of $1.8 billion
(unaudited) on December 31, 1994. With
primary resolution responsibility
residing with the Resolution Trust
Corporation (RTC), there have been few
demands on the SAIF, but the authority
of the RTC to place failed thrifts in
conservatorship or establish
receiverships expires June 30, 1995.
In addition to assessment revenues
and investment income, there are at
least two other potential sources of
funds for the SAIF. First, the FDIC has
a $30 billion line of credit available
with the Department of the Treasury
(Treasury) for deposit insurance
purposes, although the SAIF has
required no extension of credit. Second,
the Resolution Trust Corporation
Completion Act (RTCCA) authorized the
appropriation of up to $8 billion in
Treasury funds to pay for losses
incurred by the SAIF during fiscal years
1994 through 1998, to the extent of the
availability of appropriated funds and
provided that certain certifications are
made to the Congress by the Chairman
of the FDIC. Among these, the Chairman
must certify that the FDIC Board has
determined that:
(1) SAIF members are unable to pay
additional semiannual assessments at the
rates required to cover losses and to meet the
repayment schedule for any amount
borrowed from the Treasury for insurance
purposes under the FDIC’s line of credit
without adversely affecting the SAIF
members’ ability to raise capital or to
maintain the assessment base; and
(2) An increase in assessment rates for
SAIF members to cover losses or meet any
repayment schedule could reasonably be
expected to result in greater losses to the
Government.
The RTC’s resolution activities and
the thrift industry’s substantial
reduction of troubled assets in recent
years have resulted in a relatively sound
industry as the July 1, 1995 date for
SAIF resolution responsibility
approaches. However, with a balance of
$1.8 billion beginning 1995, the SAIF
does not have a large cushion with
which to absorb the costs of thrift
failures. The FDIC has significantly
reduced its projections of failed-thrift
assets for 1995 and 1996, but the failure
of a single large institution or an
economic downturn leading to higher
than anticipated losses could render the
fund insolvent.
Furthermore, there may soon be a
substantial differential between BIF and
SAIF premiums. The BIF is expected to
be recapitalized during 1995, at which
time BIF premiums can be reduced far
below current levels. Largely due to the
FICO obligation, the SAIF is not likely
to be recapitalized until 2002 (this
projection is discussed below in section
III). A premium differential may have
adverse consequences for SAIF
members, including reduced earnings
and an impaired ability to raise funds in
the capital markets. Among the weakest
thrifts, this differential could result in
competitive pressures that would lead
to additional failures. An analysis over
a five year time span suggests that any
such increase in failures is likely to be
sufficiently small as to be manageable
by the SAIF under current interest-rate
and asset quality conditions. Moreover,
the analysis indicates that under harsher
interest-rate and asset-quality
assumptions, these economic factors
would have a significantly greater effect
on SAIF-member failure rates than
would a premium differential.
While the premium differential is not
expected to lead to significant failures
in the near term, it may lead to other
adverse results. A premium differential
would also create a powerful incentive
for SAIF-insured institutions to
minimize premium costs by shrinking
the base against which assessments are
levied (currently domestic deposits).
This can be accomplished, despite the
moratorium on conversions of SAIF-
insured deposits to BIF-insured deposits
at these institutions, by substituting
nondeposit liabilities for SAIF-insured
deposits. These nondeposit liabilities
are readily available and include
Federal Home Loan Bank (FHLB)
advances and reverse repurchase
agreements. The net result could be an
acceleration of the shrinkage of the
assessment base, thereby reducing
assessment revenue. This could threaten
the ability to service the FICO obligation
sometime near or after the year 2000
and, over the longer term, frustrate the
capitalization of the SAIF. As shown in
the following table, the assessment base
has been declining steadily since the
fund was established in 1989, although
the decline was at a slower rate in 1994.
TABLE 3.—SAIF ASSESSMENT BASE AND INSURED DEPOSITS*
[Dollar amounts in billions]
Assessment base Percent change Est. Insured de-
posits Percent change
1989 .................................................................................. $950.3 $882.9 6.0
1990 .................................................................................. 877.7 ¥7.6 830.0 ¥6.0
1991 .................................................................................. 820.2 ¥6.5 776.4 ¥6.5
1992 .................................................................................. 760.5 ¥7.3 729.5 ¥6.0
1993 .................................................................................. 729.4 ¥4.1 695.6 ¥4.6
1994 .................................................................................. 716.3 ¥1.8 687.3 ¥1.2
*Includes conservatorships and Sasser institutions; adjusted for Oakar deposits. End-of-period domestic deposits are used to approximate the
SAIF assessment base. The actual assessment base may be slightly less than domestic deposits due to float adjustments, but period-to-period
changes should be similar. Table 3 presents end-of-period figures (the comparable table in earlier proposals used averages) to reflect the quar-
terly billing system which becomes effective the second quarter of 1995.