63400 Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Rules and Regulations
5. Property location—use of BNA. At its
option, an institution may report property
location by using a block numbering area
(BNA). The U.S. Census Bureau, in
conjunction with state agencies, has
established BNAs as statistical subdivisions
of counties in which census tracts have not
been established. BNAs are generally
identified in census data by numbers in the
range 9501 to 9999.99. (Appendix A of this
part, Paragraph V.C.4.)
Paragraph 4(a)(7) Applicant and income
data.
1. Applicant data—completion by
applicant. An institution reports the
monitoring information as provided by the
applicant. For example, if an applicant
checks the ‘‘other’’ box the institution reports
using the ‘‘other’’ code. (Appendix A of this
part, Paragraph V.D.)
2. Applicant data—completion by lender. If
an applicant fails to provide the requested
information for an application taken in
person, the institution reports the data on the
basis of visual observation or surname. As
stated in paragraph I.B.5 to Appendix B of
this part, the institution does not use the
‘‘other’’ code, but selects from the categories
listed on the form. (Appendix A of this part,
Paragraph V.D.)
3. Applicant data—application completed
in person. When an applicant meets in
person with a lender to complete an
application that was begun by mail or
telephone, the institution must request the
monitoring information. If the meeting occurs
after the application process is complete, for
example, at closing, the institution is not
required to obtain monitoring information.
(Appendix A of this part, Paragraph V.D.)
4. Applicant data—joint applicant. A joint
applicant may enter the government
monitoring information on behalf of an
absent joint applicant. If the information is
not provided, the institution reports using
the code for ‘‘information not provided by
applicant in mail or telephone application.’’
(Appendix A of this part, Paragraph V.D.)
5. Applicant data—video and other
electronic application processes. An
institution that accepts applications through
electronic media with a video component
treats the applications as taken in person and
collects the information about the race or
national origin and sex of applicants. An
institution that accepts applications through
electronic media without a video component
(for example, the Internet or facsimile) treats
the applications as accepted by mail.
(Appendix A of this part, Paragraph V.D.)
(See Appendix B of this part for procedures
to be used for data collection.)
6. Income data—income relied upon. An
institution reports the gross annual income
relied on in evaluating the creditworthiness
of applicants. For example, if an institution
relies on an applicant’s salary to compute a
debt-to-income ratio, but also relies on the
applicant’s annual bonus to evaluate
creditworthiness, the institution reports the
salary and the bonus to the extent relied
upon. Similarly, if an institution relies on the
income of a cosigner to evaluate
creditworthiness, the institution includes
this income to the extent relied upon. But an
institution does not include the income of a
guarantor who is only secondarily liable.
(Appendix A of this part, Paragraph V.D.5.)
7. Income data—co-applicant. If two
persons jointly apply for a loan and both list
income on the application, but the institution
relies only on the income of one applicant in
computing ratios and in evaluating
creditworthiness, the institution reports only
the income relied on. (Appendix A of this
part, Paragraph V.D.5.)
8. Income data—loan to employee. An
institution may report ‘‘NA’’ in the income
field for loans to employees to protect their
privacy, even though the institution relied on
their income in making its credit decisions.
(Appendix A of this part, Paragraph V.D.5.)
Paragraph 4(a)(8) Purchaser.
1. Type of purchaser—loan participation
interests sold to more than one entity. An
institution that originates a loan, and then
sells it to more than one entity, reports the
‘‘type of purchaser’’ based on the entity
purchasing the greatest interest, if any. If an
institution retains a majority interest it does
not report the sale. (Appendix A of this part,
Paragraph V.E.)
4(c) Optional data.
1. Agency requirements. Certain state or
federal entities, such as the Office of Thrift
Supervision, require institutions to report the
reasons for denial even though this is
optional reporting under HMDA and
Regulation C. (Appendix A of this part,
Paragraph V.F.)
4(d) Excluded data.
1. Loan pool. The purchase of an interest
in a loan pool (such as a mortgage-
participation certificate, a mortgage-backed
security, or a real estate mortgage investment
conduit or ‘‘REMIC’’) is a purchase of an
interest in a security under HMDA and is not
reported on the HMDA–LAR. (Appendix A of
this part, Paragraph IV.B.5.)
Section 203.5—Disclosure and Reporting
5(a) Reporting to agency.
1. Change in supervisory agency. If the
supervisory agency for a covered institution
changes (as a consequence of a merger or a
change in the institution’s charter, for
example), the institution reports data to its
new supervisory agency for the year of the
change and subsequent years. (Appendix A
of this part, Paragraphs I., III. and VI.)
2. Subsidiaries. An institution is a
subsidiary of a bank or savings association
(for purposes of reporting HMDA data to the
parent’s supervisory agency) if the bank or
savings association holds or controls an
ownership interest that is greater than 50
percent of the institution. (Appendix A of
this part, Paragraph I.E. and VI.)
5(e) Notice of availability.
1. Poster—suggested text. The suggested
wording of the poster text provided in
Appendix A of this part is optional. An
institution may use other text that meets the
requirements of the regulation. (Appendix A
of this part, Paragraph III.G.)
Section 203.6—Enforcement
6(b) Bona fide errors.
1. Bona fide error—information from third
parties. An institution that obtains the
property location information for
applications and loans from third parties
(such as appraisers or vendors of
‘‘geocoding’’ services) is responsible for
ensuring that the information reported on its
HMDA–LAR is correct. An incorrect entry for
a census tract number is a bona fide error,
and is not a violation of the act or regulation,
provided that the institution maintains
reasonable procedures to avoid such errors
(for example, by conducting periodic checks
of the information obtained from these third
parties). (Appendix A of this part, Paragraph
V.C.)
By order of the Secretary of the Board,
acting pursuant to delegated authority for the
Board of Governors of the Federal Reserve
System, December 4, 1995.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95–30035 Filed 12–8–95; 8:45 am]
BILLING CODE 6210–01–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
Assessments; Adjustment of
Assessment Rate Schedule for BIF-
Assessable Deposits
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Adjustment of assessment rate
schedule.
SUMMARY: On November 14, 1995, the
Board of Directors of the FDIC adopted
a resolution to reduce to a range of 0 to
27 basis points the assessment rates
applicable to deposits assessable by the
Bank Insurance Fund for the
semiannual assessment period
beginning January 1, 1996. The
reduction represents a downward
adjustment of 4 basis points from the
BIF assessment rate schedule currently
in effect for the second semiannual
assessment period of 1995.
EFFECTIVE DATE: January 1, 1996,
through June 30, 1996.
FOR FURTHER INFORMATION CONTACT:
Frederick S. Carns, Chief, Financial
Markets Section, Division of Research
and Statistics, (202) 898–3930; Christine
Blair, Financial Economist, Division of
Research and Statistics, (202) 898–3936;
Claude A. Rollin, Senior Counsel, Legal
Division, (202) 898–3985; Martha L.
Coulter, Counsel, Legal Division, (202)
898–7348; Federal Deposit Insurance
Corporation, 550–17th Street NW.,
Washington, D. C., 20429.
SUPPLEMENTARY INFORMATION:
I. Adjustment of Existing BIF
Assessment Rate Schedule
On August 8, 1995, the Board of
Directors of the FDIC (Board) adopted a
new assessment rate schedule for
5. Property location—use of BNA. At its
option, an institution may report property
location by using a block numbering area
(BNA). The U.S. Census Bureau, in
conjunction with state agencies, has
established BNAs as statistical subdivisions
of counties in which census tracts have not
been established. BNAs are generally
identified in census data by numbers in the
range 9501 to 9999.99. (Appendix A of this
part, Paragraph V.C.4.)
Paragraph 4(a)(7) Applicant and income
data.
1. Applicant data—completion by
applicant. An institution reports the
monitoring information as provided by the
applicant. For example, if an applicant
checks the ‘‘other’’ box the institution reports
using the ‘‘other’’ code. (Appendix A of this
part, Paragraph V.D.)
2. Applicant data—completion by lender. If
an applicant fails to provide the requested
information for an application taken in
person, the institution reports the data on the
basis of visual observation or surname. As
stated in paragraph I.B.5 to Appendix B of
this part, the institution does not use the
‘‘other’’ code, but selects from the categories
listed on the form. (Appendix A of this part,
Paragraph V.D.)
3. Applicant data—application completed
in person. When an applicant meets in
person with a lender to complete an
application that was begun by mail or
telephone, the institution must request the
monitoring information. If the meeting occurs
after the application process is complete, for
example, at closing, the institution is not
required to obtain monitoring information.
(Appendix A of this part, Paragraph V.D.)
4. Applicant data—joint applicant. A joint
applicant may enter the government
monitoring information on behalf of an
absent joint applicant. If the information is
not provided, the institution reports using
the code for ‘‘information not provided by
applicant in mail or telephone application.’’
(Appendix A of this part, Paragraph V.D.)
5. Applicant data—video and other
electronic application processes. An
institution that accepts applications through
electronic media with a video component
treats the applications as taken in person and
collects the information about the race or
national origin and sex of applicants. An
institution that accepts applications through
electronic media without a video component
(for example, the Internet or facsimile) treats
the applications as accepted by mail.
(Appendix A of this part, Paragraph V.D.)
(See Appendix B of this part for procedures
to be used for data collection.)
6. Income data—income relied upon. An
institution reports the gross annual income
relied on in evaluating the creditworthiness
of applicants. For example, if an institution
relies on an applicant’s salary to compute a
debt-to-income ratio, but also relies on the
applicant’s annual bonus to evaluate
creditworthiness, the institution reports the
salary and the bonus to the extent relied
upon. Similarly, if an institution relies on the
income of a cosigner to evaluate
creditworthiness, the institution includes
this income to the extent relied upon. But an
institution does not include the income of a
guarantor who is only secondarily liable.
(Appendix A of this part, Paragraph V.D.5.)
7. Income data—co-applicant. If two
persons jointly apply for a loan and both list
income on the application, but the institution
relies only on the income of one applicant in
computing ratios and in evaluating
creditworthiness, the institution reports only
the income relied on. (Appendix A of this
part, Paragraph V.D.5.)
8. Income data—loan to employee. An
institution may report ‘‘NA’’ in the income
field for loans to employees to protect their
privacy, even though the institution relied on
their income in making its credit decisions.
(Appendix A of this part, Paragraph V.D.5.)
Paragraph 4(a)(8) Purchaser.
1. Type of purchaser—loan participation
interests sold to more than one entity. An
institution that originates a loan, and then
sells it to more than one entity, reports the
‘‘type of purchaser’’ based on the entity
purchasing the greatest interest, if any. If an
institution retains a majority interest it does
not report the sale. (Appendix A of this part,
Paragraph V.E.)
4(c) Optional data.
1. Agency requirements. Certain state or
federal entities, such as the Office of Thrift
Supervision, require institutions to report the
reasons for denial even though this is
optional reporting under HMDA and
Regulation C. (Appendix A of this part,
Paragraph V.F.)
4(d) Excluded data.
1. Loan pool. The purchase of an interest
in a loan pool (such as a mortgage-
participation certificate, a mortgage-backed
security, or a real estate mortgage investment
conduit or ‘‘REMIC’’) is a purchase of an
interest in a security under HMDA and is not
reported on the HMDA–LAR. (Appendix A of
this part, Paragraph IV.B.5.)
Section 203.5—Disclosure and Reporting
5(a) Reporting to agency.
1. Change in supervisory agency. If the
supervisory agency for a covered institution
changes (as a consequence of a merger or a
change in the institution’s charter, for
example), the institution reports data to its
new supervisory agency for the year of the
change and subsequent years. (Appendix A
of this part, Paragraphs I., III. and VI.)
2. Subsidiaries. An institution is a
subsidiary of a bank or savings association
(for purposes of reporting HMDA data to the
parent’s supervisory agency) if the bank or
savings association holds or controls an
ownership interest that is greater than 50
percent of the institution. (Appendix A of
this part, Paragraph I.E. and VI.)
5(e) Notice of availability.
1. Poster—suggested text. The suggested
wording of the poster text provided in
Appendix A of this part is optional. An
institution may use other text that meets the
requirements of the regulation. (Appendix A
of this part, Paragraph III.G.)
Section 203.6—Enforcement
6(b) Bona fide errors.
1. Bona fide error—information from third
parties. An institution that obtains the
property location information for
applications and loans from third parties
(such as appraisers or vendors of
‘‘geocoding’’ services) is responsible for
ensuring that the information reported on its
HMDA–LAR is correct. An incorrect entry for
a census tract number is a bona fide error,
and is not a violation of the act or regulation,
provided that the institution maintains
reasonable procedures to avoid such errors
(for example, by conducting periodic checks
of the information obtained from these third
parties). (Appendix A of this part, Paragraph
V.C.)
By order of the Secretary of the Board,
acting pursuant to delegated authority for the
Board of Governors of the Federal Reserve
System, December 4, 1995.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95–30035 Filed 12–8–95; 8:45 am]
BILLING CODE 6210–01–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
Assessments; Adjustment of
Assessment Rate Schedule for BIF-
Assessable Deposits
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Adjustment of assessment rate
schedule.
SUMMARY: On November 14, 1995, the
Board of Directors of the FDIC adopted
a resolution to reduce to a range of 0 to
27 basis points the assessment rates
applicable to deposits assessable by the
Bank Insurance Fund for the
semiannual assessment period
beginning January 1, 1996. The
reduction represents a downward
adjustment of 4 basis points from the
BIF assessment rate schedule currently
in effect for the second semiannual
assessment period of 1995.
EFFECTIVE DATE: January 1, 1996,
through June 30, 1996.
FOR FURTHER INFORMATION CONTACT:
Frederick S. Carns, Chief, Financial
Markets Section, Division of Research
and Statistics, (202) 898–3930; Christine
Blair, Financial Economist, Division of
Research and Statistics, (202) 898–3936;
Claude A. Rollin, Senior Counsel, Legal
Division, (202) 898–3985; Martha L.
Coulter, Counsel, Legal Division, (202)
898–7348; Federal Deposit Insurance
Corporation, 550–17th Street NW.,
Washington, D. C., 20429.
SUPPLEMENTARY INFORMATION:
I. Adjustment of Existing BIF
Assessment Rate Schedule
On August 8, 1995, the Board of
Directors of the FDIC (Board) adopted a
new assessment rate schedule for
63401Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Rules and Regulations
1 The BIF reserve ratio as of September 30, 1995,
cannot be determined precisely until Call Report
data showing BIF-assessable deposits for that date
are processed and analyzed. This process is
expected to be completed by mid-December 1995.
deposits subject to assessment by the
Bank Insurance Fund (BIF). 60 FR 42680
(August 16, 1995). The new schedule
(codified as Rate Schedule 2 at 12 C.F.R.
327.9(a)) provided for an assessment-
rate range of 4 to 31 basis points and
became effective retroactively on June 1,
1995, the beginning of the month
following the month in which the BIF
reached its designated reserve ratio
(DRR) of 1.25 percent of total estimated
insured deposits.
In adopting that rate schedule, the
Board took into account the factors
required by the assessment provisions of
section 7(b) of the Federal Deposit
Insurance Act (FDI Act), 12 U.S.C.
1817(b). Those factors include the
requirement for a risk-based assessment
system that is based on the risk of loss
posed to BIF by each BIF-insured
institution, taking into account different
categories and concentrations of assets
and liabilities and other relevant factors;
the likely amount of any such loss; and
BIF’s revenue needs. (Section 7(b)(1)).
They also include the requirement that
rates be set to reach or maintain the
DRR, taking into account BIF’s expected
operating expenses, case resolution
expenditures and income, the effect of
assessments on members’ earnings and
capital, and any other factors the Board
may deem appropriate. (Section 7(b)(2)).
At the same time the Board adopted
the current rate schedule, it also
amended the FDIC’s assessment
regulations to permit the Board to make
limited adjustments to the schedule
without notice-and-comment
rulemaking. Any such adjustments can
be made as the Board deems necessary
to maintain the BIF reserve ratio at the
DRR and can be accomplished by Board
resolution. Under this provision,
codified at 12 CFR 327.9(b), any such
adjustment must not exceed an increase
or decrease of 5 basis points and must
be uniform across the rate schedule.
The amount of an adjustment adopted
by the Board under 12 C.F.R. 327.9(b) is
to be determined by the following
considerations: (1) the amount of
assessment revenue necessary to
maintain the reserve ratio at the DRR;
and (2) the assessment schedule that
would generate such amount of
assessment revenue considering the risk
profile of BIF members. In determining
the relevant amount of assessment
revenue, the Board is to consider BIF’s
expected operating expenses, case
resolution expenditures and income, the
effect of assessments on BIF members’
earnings and capital, and any other
factors the Board may deem appropriate.
Having considered all of these factors,
the Board has decided to adopt an
adjustment factor of 4 basis points for
the semiannual assessment period
beginning January 1, 1996, with a
resulting adjusted schedule as follows:
BIF R ATE SCHEDULE AS ADJUSTED
FOR THE FIRST SEMIANNUAL PERIOD
OF 1996
Capital group Supervisory subgroup
A B C
1 .................. 1 0 3 17
2 .................. 3 10 24
3 .................. 10 24 27
1 Subject to a statutory minimum assess-
ment of $1,000 per semiannual period (which
also applies to all other assessment risk clas-
sifications).
The basis for the Board’s decision is
discussed below.
II. Basis for the Adjustment
A. Maintaining at the Designated
Reserve Ratio
On June 30, 1995, the BIF reserve
ratio stood at nearly 1.29 percent, and
all indications are that it continued to
grow during the third quarter of 1995.
If the rates in effect for the current
semiannual assessment period were to
continue in effect, it is likely that,
absent large increases in insurance
losses and deposit growth, the reserve
ratio would continue to grow during the
first half of 1996. BIF operating
expenses and insurance losses have
been lower than anticipated and are
projected to remain low in the near term
due to the strong economy and high
capital levels in the banking industry.
Even taking into account the possibility
of large increases in insurance losses
and deposit growth that currently
appear highly unlikely, it is still
probable that the reserve ratio would
remain at or above the target reserve
ratio of 1.25 percent in the near term.
Accordingly, the Board has determined
that a reduction in the BIF assessment
rate schedule is necessary to comply
with the statutory requirements for
setting assessment rates, including the
requirement that the FDIC maintain the
reserve ratio at the target DRR.
B. Determination of the Adjustment
Factor
1. Amount of Assessment Revenue
Needed
The FDIC determined in August that
an effective average BIF assessment rate
at the low end of a range beginning at
around 4.5 basis points was appropriate
to achieve a long-term balance of BIF
revenues and expenses (where expenses
include monies needed to prevent
dilution due to deposit growth). This
determination was based on a thorough
historical analysis of FDIC experience
and consideration of recently enacted
statutory provisions that may moderate
deposit insurance losses going forward.
The Board has not altered its view
that, in setting rates, it should look
beyond the immediate time frame in
estimating the revenue needs of the
fund. However, under the law, the
current balance in the BIF also is
directly relevant to determining the
appropriate assessment level for the first
semiannual period of 1996. In light of
the favorable existing conditions and
outlook for the next several months, it
is anticipated that even an adjustment
sufficient to reduce the rate for the least-
risky institutions essentially to zero for
the next assessment period would still
provide assessment revenue in an
amount that is expected to maintain the
BIF reserve ratio at or above the target
ratio of 1.25 percent in the near term.
In deciding upon a rate schedule for
the second semiannual assessment
period of 1995, the Board considered
high-growth and low-growth scenarios
for the BIF balance and the anticipated
reserve ratio at year end. Current
information suggests that the BIF
balance and reserve ratio at year end
will correspond more closely to the
high-than the low-growth scenario, as
indicated below.
The BIF reserve ratio stood at nearly
1.29 percent as of June 30, 1995, the
latest date for which complete data are
available. Assuming annualized insured
deposit growth of between 0 and 2
percent during the third quarter, the BIF
reserve ratio may have achieved 1.30 to
1.31 percent as of September 30, 1995.1
All indications are that the reserve ratio
will continue to rise for the remainder
of 1995.
Insurance losses and operating
expenses for the second half of 1995 are
expected to total under $400 million,
while assessments plus investment
income will exceed $1 billion for this
period. Insured deposit growth for the
second half of 1995 likely will be
moderate; the annualized growth rate
was 1.5 percent for the year ending on
June 30, and preliminary estimates
suggest that deposit growth will be near
zero or possibly negative for the third
quarter. Table 1 indicates that the
reserve ratio is likely to reach 1.31 to
1.34 percent by year-end 1995,
reflecting a range of insured deposit
growth from +2 to ¥2 percent annually
for the second half of the year.
1 The BIF reserve ratio as of September 30, 1995,
cannot be determined precisely until Call Report
data showing BIF-assessable deposits for that date
are processed and analyzed. This process is
expected to be completed by mid-December 1995.
deposits subject to assessment by the
Bank Insurance Fund (BIF). 60 FR 42680
(August 16, 1995). The new schedule
(codified as Rate Schedule 2 at 12 C.F.R.
327.9(a)) provided for an assessment-
rate range of 4 to 31 basis points and
became effective retroactively on June 1,
1995, the beginning of the month
following the month in which the BIF
reached its designated reserve ratio
(DRR) of 1.25 percent of total estimated
insured deposits.
In adopting that rate schedule, the
Board took into account the factors
required by the assessment provisions of
section 7(b) of the Federal Deposit
Insurance Act (FDI Act), 12 U.S.C.
1817(b). Those factors include the
requirement for a risk-based assessment
system that is based on the risk of loss
posed to BIF by each BIF-insured
institution, taking into account different
categories and concentrations of assets
and liabilities and other relevant factors;
the likely amount of any such loss; and
BIF’s revenue needs. (Section 7(b)(1)).
They also include the requirement that
rates be set to reach or maintain the
DRR, taking into account BIF’s expected
operating expenses, case resolution
expenditures and income, the effect of
assessments on members’ earnings and
capital, and any other factors the Board
may deem appropriate. (Section 7(b)(2)).
At the same time the Board adopted
the current rate schedule, it also
amended the FDIC’s assessment
regulations to permit the Board to make
limited adjustments to the schedule
without notice-and-comment
rulemaking. Any such adjustments can
be made as the Board deems necessary
to maintain the BIF reserve ratio at the
DRR and can be accomplished by Board
resolution. Under this provision,
codified at 12 CFR 327.9(b), any such
adjustment must not exceed an increase
or decrease of 5 basis points and must
be uniform across the rate schedule.
The amount of an adjustment adopted
by the Board under 12 C.F.R. 327.9(b) is
to be determined by the following
considerations: (1) the amount of
assessment revenue necessary to
maintain the reserve ratio at the DRR;
and (2) the assessment schedule that
would generate such amount of
assessment revenue considering the risk
profile of BIF members. In determining
the relevant amount of assessment
revenue, the Board is to consider BIF’s
expected operating expenses, case
resolution expenditures and income, the
effect of assessments on BIF members’
earnings and capital, and any other
factors the Board may deem appropriate.
Having considered all of these factors,
the Board has decided to adopt an
adjustment factor of 4 basis points for
the semiannual assessment period
beginning January 1, 1996, with a
resulting adjusted schedule as follows:
BIF R ATE SCHEDULE AS ADJUSTED
FOR THE FIRST SEMIANNUAL PERIOD
OF 1996
Capital group Supervisory subgroup
A B C
1 .................. 1 0 3 17
2 .................. 3 10 24
3 .................. 10 24 27
1 Subject to a statutory minimum assess-
ment of $1,000 per semiannual period (which
also applies to all other assessment risk clas-
sifications).
The basis for the Board’s decision is
discussed below.
II. Basis for the Adjustment
A. Maintaining at the Designated
Reserve Ratio
On June 30, 1995, the BIF reserve
ratio stood at nearly 1.29 percent, and
all indications are that it continued to
grow during the third quarter of 1995.
If the rates in effect for the current
semiannual assessment period were to
continue in effect, it is likely that,
absent large increases in insurance
losses and deposit growth, the reserve
ratio would continue to grow during the
first half of 1996. BIF operating
expenses and insurance losses have
been lower than anticipated and are
projected to remain low in the near term
due to the strong economy and high
capital levels in the banking industry.
Even taking into account the possibility
of large increases in insurance losses
and deposit growth that currently
appear highly unlikely, it is still
probable that the reserve ratio would
remain at or above the target reserve
ratio of 1.25 percent in the near term.
Accordingly, the Board has determined
that a reduction in the BIF assessment
rate schedule is necessary to comply
with the statutory requirements for
setting assessment rates, including the
requirement that the FDIC maintain the
reserve ratio at the target DRR.
B. Determination of the Adjustment
Factor
1. Amount of Assessment Revenue
Needed
The FDIC determined in August that
an effective average BIF assessment rate
at the low end of a range beginning at
around 4.5 basis points was appropriate
to achieve a long-term balance of BIF
revenues and expenses (where expenses
include monies needed to prevent
dilution due to deposit growth). This
determination was based on a thorough
historical analysis of FDIC experience
and consideration of recently enacted
statutory provisions that may moderate
deposit insurance losses going forward.
The Board has not altered its view
that, in setting rates, it should look
beyond the immediate time frame in
estimating the revenue needs of the
fund. However, under the law, the
current balance in the BIF also is
directly relevant to determining the
appropriate assessment level for the first
semiannual period of 1996. In light of
the favorable existing conditions and
outlook for the next several months, it
is anticipated that even an adjustment
sufficient to reduce the rate for the least-
risky institutions essentially to zero for
the next assessment period would still
provide assessment revenue in an
amount that is expected to maintain the
BIF reserve ratio at or above the target
ratio of 1.25 percent in the near term.
In deciding upon a rate schedule for
the second semiannual assessment
period of 1995, the Board considered
high-growth and low-growth scenarios
for the BIF balance and the anticipated
reserve ratio at year end. Current
information suggests that the BIF
balance and reserve ratio at year end
will correspond more closely to the
high-than the low-growth scenario, as
indicated below.
The BIF reserve ratio stood at nearly
1.29 percent as of June 30, 1995, the
latest date for which complete data are
available. Assuming annualized insured
deposit growth of between 0 and 2
percent during the third quarter, the BIF
reserve ratio may have achieved 1.30 to
1.31 percent as of September 30, 1995.1
All indications are that the reserve ratio
will continue to rise for the remainder
of 1995.
Insurance losses and operating
expenses for the second half of 1995 are
expected to total under $400 million,
while assessments plus investment
income will exceed $1 billion for this
period. Insured deposit growth for the
second half of 1995 likely will be
moderate; the annualized growth rate
was 1.5 percent for the year ending on
June 30, and preliminary estimates
suggest that deposit growth will be near
zero or possibly negative for the third
quarter. Table 1 indicates that the
reserve ratio is likely to reach 1.31 to
1.34 percent by year-end 1995,
reflecting a range of insured deposit
growth from +2 to ¥2 percent annually
for the second half of the year.