63405Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Rules and Regulations
[FR Doc. 95–28719 Filed 12–8–95; 8:45 am]
BILLING CODE 6714–01–C
[FR Doc. 95–28719 Filed 12–8–95; 8:45 am]
BILLING CODE 6714–01–C
63406 Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Rules and Regulations
12 CFR Part 327
Assessments; Retention of Existent
Assessment Rate Schedule for SAIF-
Member Institutions
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Confirmation of assessment rate.
SUMMARY: On November 14, 1995, the
Board of Directors of the FDIC (Board)
adopted a resolution to retain the
existing assessment rate schedule
applicable to members of the Savings
Association Insurance Fund (SAIF) for
the first semiannual assessment period
of 1996. As a result of this action, the
SAIF assessment rate to be paid by
depository institutions whose deposits
are subject to assessment by the SAIF
will continue to range from 23 cents per
$100 of assessable deposits to 31 cents
per $100 of assessable deposits,
depending on risk classification.
EFFECTIVE DATE: January 1, 1996,
through June 30, 1996.
FOR FURTHER INFORMATION CONTACT:
James R. McFadyen, Senior Financial
Analyst, Division of Research and
Statistics, (202) 898–7027; Claude A.
Rollin, Senior Counsel, Legal Division,
(202) 898–3985; or Valerie Jean Best,
Counsel, Legal Division, (202) 898–
3812; Federal Deposit Insurance
Corporation, Washington, D.C. 20429.
SUPPLEMENTARY INFORMATION:
I. Summary
Based upon the results of its
semiannual review of the capitalization
of the SAIF and of the SAIF assessment
rates, the Board has determined to retain
the existing assessment rate schedule
applicable to SAIF-member institutions
for the first semiannual assessment
period of 1996 so that capitalization of
the SAIF is accomplished as soon as
possible. As a result of this action, the
SAIF assessment rate to be paid by
institutions whose deposits are subject
to assessment by the SAIF will continue
to range from 23 cents per $100 of
assessable deposits to 31 cents per $100
of assessable deposits, depending on
risk classification.
Despite the general good health of the
thrift industry, the SAIF is not in good
condition and it remains significantly
undercapitalized. On June 30, 1995, the
SAIF had a balance of $2.6 billion, or
about 37 cents in reserves for every $100
in insured deposits. An additional $6.3
billion would have been required on
that date to fully capitalize the SAIF to
its designated reserve ratio (DRR) of 1.25
percent of estimated insured deposits.
As of September 30, 1995, the SAIF
balance had grown to $3.1 billion,
although the reserve ratio for that date
cannot be determined until insured
deposits as of September 30 become
available in December. At the current
pace, and under reasonably optimistic
assumptions, the SAIF would not reach
the statutorily mandated DRR until at
least the year 2002. The failure of a
single large SAIF-insured institution or
several sizeable institutions or an
economic downturn leading to higher
than anticipated losses could render the
fund insolvent. While the FDIC is not
currently predicting such thrift failures,
they are possible.
The main source of income for the
SAIF is assessments. A sizable portion
of the SAIF’s ongoing assessments (up
to $793 million annually) is diverted to
meet interest payments on obligations of
the Financing Corporation (FICO).
Reducing assessment rates to the lowest
minimum average rate permitted by
law—18 basis points—is presently
projected to delay SAIF capitalization
until 2005, and it would cause a FICO
shortfall as early as 1996. Moreover,
there will still be a significant
differential between assessment rates of
the Bank Insurance Fund (BIF) and the
SAIF even if the Board reduces the SAIF
assessments to the minimum average
allowed by statute.
II. Statutory Provisions Governing SAIF
Assessment Rates
A. Section 7 of the Federal Deposit
Insurance Act
Section 7(b) of the Federal Deposit
Insurance Act (FDI Act) governs the
Board’s authority for setting assessments
for SAIF members. 12 U.S.C. 1817(b).
Section 7(b)(1) (A) and (C) require that
the FDIC maintain a risk-based
assessment system, setting assessments
based on (1) the probable risk to the
fund posed by each insured depository
institution taking into account different
categories and concentrations of assets
and liabilities and any other relevant
factors; (2) the likely amount of any
such loss; and (3) the revenue needs of
the fund. Section 7(b)(2)(A)(iii) further
directs the Board to impose a minimum
assessment on each institution not less
than $1,000 semiannually. The Board
must set semiannual assessments and
the DRR for each deposit insurance fund
independently. FDI Act section
7(b)(2)(B).
The Board must set semiannual
assessments for SAIF members to
maintain the reserve ratio at the DRR or,
if the reserve ratio is less than the DRR,
to increase the reserve ratio to the DRR.
FDI Act section 7(b)(2)(A)(i). The
reserve ratio is the dollar amount of the
fund balance divided by estimated
SAIF-insured deposits. The DRR for the
SAIF is currently 1.25 percent of
estimated insured deposits, the
minimum level permitted by the FDI
Act. In setting SAIF assessments to
achieve and maintain the DRR, the
Board must consider the SAIF’s
expected operating expenses, case
resolution expenditures and income, the
effect of assessments on members’
earnings and capital, and any other
factors that the Board may deem
appropriate. FDI Act section 7(b)(2)(D).
Before January 1, 1998, if the SAIF
remains below the DRR, the total
amount raised by semiannual
assessments on SAIF members may not
be less than the amount that would have
been raised if section 7(b) as in effect on
July 15, 1991 remained in effect. See
FDI Act section 7(b)(2) (E) and (F). The
minimum rate required by section 7(b)
as then in effect was 0.18 percent.
Beginning January 1, 1998, all
minimum assessment provisions
applicable to BIF members also apply to
SAIF members. Under these provisions,
if the SAIF remains below the DRR, the
total amount raised by semiannual
assessments on SAIF members may not
be less than the amount that would have
been raised by an assessment rate of
0.23 percent. See FDI Act section
7(b)(2)(E).
The Board thus has the legal authority
to reduce SAIF assessment rates to a
minimum average of 18 basis points
until January 1, 1998. Beginning January
1, 1998, however, the minimum average
rate must be 23 basis points until SAIF
achieves its DRR of 1.25 percent.
In setting semiannual assessments for
members of the SAIF, beginning January
1, 1998, if the reserve ratio of the SAIF
is less than the DRR, the Board must set
semiannual assessments either, (a) at
rates sufficient to increase the reserve
ratio to the DRR within 1 year after
setting the rates, or (b) in accordance
with a schedule for recapitalization,
adopted by regulation, that specifies
target reserve ratios at semiannual
intervals culminating in a reserve ratio
that is equal to the DRR not later than
15 years after implementation of the
schedule. FDI Act section 7(b)(3).
Section 8(h) of the Resolution Trust
Corporation Completion Act (RTCCA),
Pub. L. No. 103–204, 107 Stat.2369,
2388, amended section 7(b)(3) to allow
the Board, by regulation, to amend the
SAIF capitalization schedule to extend
the date by which the SAIF must be
capitalized beyond the 15-year time
limit to a date which the Board
determines will, over time, maximize
the amount of semiannual assessments
received by the SAIF, net of insurance
12 CFR Part 327
Assessments; Retention of Existent
Assessment Rate Schedule for SAIF-
Member Institutions
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Confirmation of assessment rate.
SUMMARY: On November 14, 1995, the
Board of Directors of the FDIC (Board)
adopted a resolution to retain the
existing assessment rate schedule
applicable to members of the Savings
Association Insurance Fund (SAIF) for
the first semiannual assessment period
of 1996. As a result of this action, the
SAIF assessment rate to be paid by
depository institutions whose deposits
are subject to assessment by the SAIF
will continue to range from 23 cents per
$100 of assessable deposits to 31 cents
per $100 of assessable deposits,
depending on risk classification.
EFFECTIVE DATE: January 1, 1996,
through June 30, 1996.
FOR FURTHER INFORMATION CONTACT:
James R. McFadyen, Senior Financial
Analyst, Division of Research and
Statistics, (202) 898–7027; Claude A.
Rollin, Senior Counsel, Legal Division,
(202) 898–3985; or Valerie Jean Best,
Counsel, Legal Division, (202) 898–
3812; Federal Deposit Insurance
Corporation, Washington, D.C. 20429.
SUPPLEMENTARY INFORMATION:
I. Summary
Based upon the results of its
semiannual review of the capitalization
of the SAIF and of the SAIF assessment
rates, the Board has determined to retain
the existing assessment rate schedule
applicable to SAIF-member institutions
for the first semiannual assessment
period of 1996 so that capitalization of
the SAIF is accomplished as soon as
possible. As a result of this action, the
SAIF assessment rate to be paid by
institutions whose deposits are subject
to assessment by the SAIF will continue
to range from 23 cents per $100 of
assessable deposits to 31 cents per $100
of assessable deposits, depending on
risk classification.
Despite the general good health of the
thrift industry, the SAIF is not in good
condition and it remains significantly
undercapitalized. On June 30, 1995, the
SAIF had a balance of $2.6 billion, or
about 37 cents in reserves for every $100
in insured deposits. An additional $6.3
billion would have been required on
that date to fully capitalize the SAIF to
its designated reserve ratio (DRR) of 1.25
percent of estimated insured deposits.
As of September 30, 1995, the SAIF
balance had grown to $3.1 billion,
although the reserve ratio for that date
cannot be determined until insured
deposits as of September 30 become
available in December. At the current
pace, and under reasonably optimistic
assumptions, the SAIF would not reach
the statutorily mandated DRR until at
least the year 2002. The failure of a
single large SAIF-insured institution or
several sizeable institutions or an
economic downturn leading to higher
than anticipated losses could render the
fund insolvent. While the FDIC is not
currently predicting such thrift failures,
they are possible.
The main source of income for the
SAIF is assessments. A sizable portion
of the SAIF’s ongoing assessments (up
to $793 million annually) is diverted to
meet interest payments on obligations of
the Financing Corporation (FICO).
Reducing assessment rates to the lowest
minimum average rate permitted by
law—18 basis points—is presently
projected to delay SAIF capitalization
until 2005, and it would cause a FICO
shortfall as early as 1996. Moreover,
there will still be a significant
differential between assessment rates of
the Bank Insurance Fund (BIF) and the
SAIF even if the Board reduces the SAIF
assessments to the minimum average
allowed by statute.
II. Statutory Provisions Governing SAIF
Assessment Rates
A. Section 7 of the Federal Deposit
Insurance Act
Section 7(b) of the Federal Deposit
Insurance Act (FDI Act) governs the
Board’s authority for setting assessments
for SAIF members. 12 U.S.C. 1817(b).
Section 7(b)(1) (A) and (C) require that
the FDIC maintain a risk-based
assessment system, setting assessments
based on (1) the probable risk to the
fund posed by each insured depository
institution taking into account different
categories and concentrations of assets
and liabilities and any other relevant
factors; (2) the likely amount of any
such loss; and (3) the revenue needs of
the fund. Section 7(b)(2)(A)(iii) further
directs the Board to impose a minimum
assessment on each institution not less
than $1,000 semiannually. The Board
must set semiannual assessments and
the DRR for each deposit insurance fund
independently. FDI Act section
7(b)(2)(B).
The Board must set semiannual
assessments for SAIF members to
maintain the reserve ratio at the DRR or,
if the reserve ratio is less than the DRR,
to increase the reserve ratio to the DRR.
FDI Act section 7(b)(2)(A)(i). The
reserve ratio is the dollar amount of the
fund balance divided by estimated
SAIF-insured deposits. The DRR for the
SAIF is currently 1.25 percent of
estimated insured deposits, the
minimum level permitted by the FDI
Act. In setting SAIF assessments to
achieve and maintain the DRR, the
Board must consider the SAIF’s
expected operating expenses, case
resolution expenditures and income, the
effect of assessments on members’
earnings and capital, and any other
factors that the Board may deem
appropriate. FDI Act section 7(b)(2)(D).
Before January 1, 1998, if the SAIF
remains below the DRR, the total
amount raised by semiannual
assessments on SAIF members may not
be less than the amount that would have
been raised if section 7(b) as in effect on
July 15, 1991 remained in effect. See
FDI Act section 7(b)(2) (E) and (F). The
minimum rate required by section 7(b)
as then in effect was 0.18 percent.
Beginning January 1, 1998, all
minimum assessment provisions
applicable to BIF members also apply to
SAIF members. Under these provisions,
if the SAIF remains below the DRR, the
total amount raised by semiannual
assessments on SAIF members may not
be less than the amount that would have
been raised by an assessment rate of
0.23 percent. See FDI Act section
7(b)(2)(E).
The Board thus has the legal authority
to reduce SAIF assessment rates to a
minimum average of 18 basis points
until January 1, 1998. Beginning January
1, 1998, however, the minimum average
rate must be 23 basis points until SAIF
achieves its DRR of 1.25 percent.
In setting semiannual assessments for
members of the SAIF, beginning January
1, 1998, if the reserve ratio of the SAIF
is less than the DRR, the Board must set
semiannual assessments either, (a) at
rates sufficient to increase the reserve
ratio to the DRR within 1 year after
setting the rates, or (b) in accordance
with a schedule for recapitalization,
adopted by regulation, that specifies
target reserve ratios at semiannual
intervals culminating in a reserve ratio
that is equal to the DRR not later than
15 years after implementation of the
schedule. FDI Act section 7(b)(3).
Section 8(h) of the Resolution Trust
Corporation Completion Act (RTCCA),
Pub. L. No. 103–204, 107 Stat.2369,
2388, amended section 7(b)(3) to allow
the Board, by regulation, to amend the
SAIF capitalization schedule to extend
the date by which the SAIF must be
capitalized beyond the 15-year time
limit to a date which the Board
determines will, over time, maximize
the amount of semiannual assessments
received by the SAIF, net of insurance