26082 Federal Register / Vol. 61, No. 102 / Friday, May 24, 1996 / Rules and Regulations
[FR Doc. 96–12885 Filed 5–23–96; 8:45 am]
BILLING CODE 6714–01–C
[FR Doc. 96–12885 Filed 5–23–96; 8:45 am]
BILLING CODE 6714–01–C
26083Federal Register / Vol. 61, No. 102 / Friday, May 24, 1996 / Rules and Regulations
12 CFR Part 327
Assessments; Retention of Existing
Assessment Rate Schedule for SAIF-
Member Institutions
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Confirmation of assessment rate.
SUMMARY: On May 14, 1996, 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
semiannual period beginning July 1,
1996. As a result of this action, the SAIF
assessment rates 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: July 1, 1996, through
December 31, 1996.
FOR FURTHER INFORMATION CONTACT:
James R. McFadyen, Senior Financial
Analyst, Division of Research and
Statistics, (202) 898–7027; Christine E.
Blair, Financial Economist, Division of
Research and Statistics, (202) 898–3936;
Christopher L. Hencke, Counsel, Legal
Division, (202) 898–8839; Federal
Deposit Insurance Corporation, 550 17th
Street NW., Washington, D.C., 20429.
SUPPLEMENTARY INFORMATION:
I. Confirmation of Assessment Rate
Section 7(b) of the Federal Deposit
Insurance Act, 12 U.S.C. 1817(b),
provides that the Board shall set
semiannual assessments for insured
depository institutions. For members of
the undercapitalized SAIF, the Board
must set assessment rates to increase the
reserve ratio of the SAIF to the
designated reserve ratio (DRR) of 1.25
percent of estimated insured deposits.
12 U.S.C. 1817(b)(2)(A)(i). The Board
must consider 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. 12 U.S.C.
1817(b)(2)(A)(ii).
The minimum semiannual assessment
for each member is $1,000. 12 U.S.C.
1817(b)(2)(A)(iii). Moreover, the total
amount raised by SAIF assessments
must not be less than the total amount
that would be raised by a rate of 18 basis
points. 12 U.S.C. 1817(b)(2)(E). The
assessment revenue is subject to a
priority claim by the Financing
Corporation (FICO). 12 U.S.C.
1817(b)(2)(D).
In accordance with the statutory
requirements above, the Board adopted
the SAIF assessment rate schedule
codified at 12 CFR 327.9(d)(1). The
Board has applied this schedule in
previous assessment periods as well as
the current period from January 1, 1996
through June 30, 1996. 60 FR 63406
(December 11, 1995). The Board has
now decided to retain this schedule for
the upcoming semiannual period from
July 1, 1996 through December 31, 1996.
II. Basis for Confirmation
In setting assessment rates, the Board
must increase the reserve ratio of the
SAIF to the DRR of 1.25 percent of
estimated insured deposits. On
December 31, 1995, the SAIF had a
balance of nearly $3.4 billion and a
reserve ratio of 0.47 percent of insured
deposits, about $5.5 billion below the
amount needed to meet the DRR. The
SAIF reserve ratio continues to rise, but
the rate of progress is slowed by the
diversion of assessment revenues to
other statutory purposes. Since the
inception of the SAIF in 1989, these
diversions have totaled $7.7 billion.
Without these diversions, the SAIF
would be fully capitalized today. Some
of these demands on the SAIF have been
fully satisfied, but FICO continues to
have an annual draw of up to $793
million against SAIF assessments, until
2019.
The SAIF grew by $1.4 billion in
1995, but a large share of that growth—
$321 million—stemmed from the
reduction in loss reserves for
anticipated failures. These reductions in
loss reserves reflect recent
improvements in the health of the thrift
industry and a decline in projected
thrift failures. Further reductions in
reserves of this magnitude will not
happen again because the remaining
loss reserves are now only
approximately $111 million.
At the present pace and under
reasonably optimistic conditions, the
SAIF is not expected to meet the DRR
until 2001, which is slightly ahead of
the capitalization date projected last
year. The acceleration of the
capitalization date is attributable to
lower-than-expected loss experience in
1995 and the lowering of loss
projections for 1996 and 1997. The thrift
industry is healthy today, and no large
thrifts are expected to fail in the near
future. Thrifts earned record profits of
$7.6 billion in 1995, and the number
and assets of ‘‘problem’’ thrifts continue
to decline. Presently, 88 percent of all
SAIF members qualify for the lowest
premium under the FDIC’s risk-based
assessment system. However, it is not
known how much longer the present
favorable conditions can continue, and
it would be prudent for the SAIF to be
fully capitalized as quickly as possible
to be prepared for future uncertainties.
The Board has the option of lowering
SAIF assessment rates to a minimum
average annual assessment rate of 18
basis points until January 1, 1998, at
which time rates must return to a
minimum average annual assessment
rate of 23 basis points until the DRR is
attained. However, the lowering of rates
for this 18-month period would delay
the SAIF from reaching full
capitalization and could result in a
FICO default in 1997.
Other developments have threatened
the stability of the SAIF. Given the
recapitalization of the Bank Insurance
Fund (BIF) in 1995, the Board
subsequently lowered BIF premiums to
an average of just 0.3 basis points,
compared to the average SAIF premium
of 23.4 basis points. This disparity
between BIF and SAIF premiums of
about 23 basis points provides powerful
economic incentives for SAIF-insured
institutions to reduce their SAIF-
assessable deposits. Despite a general
ban on conversions between insurance
funds, thrifts have developed and are
pursuing means to transfer deposits
from SAIF to BIF insurance or otherwise
reduce their reliance on SAIF-assessable
deposits. During 1995, for example, one
large SAIF member shifted an estimated
$3.4 billion in deposits to a BIF-member
affiliate, and another thrift took
advantage of an Oakar accounting
anomaly that caused $3.3 billion of
SAIF deposits to be reclassified as BIF
deposits following the sale of BIF-
insured deposits.
The migration of deposits out of the
SAIF deposit base would accelerate the
capitalization of the SAIF (see Table 2),
but it would exacerbate the problems
facing the SAIF by reducing the fund’s
ability to diversify its risks. It is likely
to be the stronger SAIF members that
will be successful in shifting deposits to
the BIF. As a result, weaker thrifts and
the banks that own SAIF deposits would
be more exposed to the losses of an
insurance fund that will have a higher
risk profile.
If the Board were to lower SAIF
assessment rates to 18 basis points, it
would reduce the premium disparity
from 23 basis points to 18 basis points,
but it is unlikely that a temporary
reduction of 5 basis points would
temper the existing incentives to reduce
reliance on SAIF-assessable deposits.
Moreover, a reduction in assessment
rates, in combination with a shrinking
assessment base, would hasten a FICO
shortfall (see Tables 3 and 4).
12 CFR Part 327
Assessments; Retention of Existing
Assessment Rate Schedule for SAIF-
Member Institutions
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Confirmation of assessment rate.
SUMMARY: On May 14, 1996, 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
semiannual period beginning July 1,
1996. As a result of this action, the SAIF
assessment rates 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: July 1, 1996, through
December 31, 1996.
FOR FURTHER INFORMATION CONTACT:
James R. McFadyen, Senior Financial
Analyst, Division of Research and
Statistics, (202) 898–7027; Christine E.
Blair, Financial Economist, Division of
Research and Statistics, (202) 898–3936;
Christopher L. Hencke, Counsel, Legal
Division, (202) 898–8839; Federal
Deposit Insurance Corporation, 550 17th
Street NW., Washington, D.C., 20429.
SUPPLEMENTARY INFORMATION:
I. Confirmation of Assessment Rate
Section 7(b) of the Federal Deposit
Insurance Act, 12 U.S.C. 1817(b),
provides that the Board shall set
semiannual assessments for insured
depository institutions. For members of
the undercapitalized SAIF, the Board
must set assessment rates to increase the
reserve ratio of the SAIF to the
designated reserve ratio (DRR) of 1.25
percent of estimated insured deposits.
12 U.S.C. 1817(b)(2)(A)(i). The Board
must consider 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. 12 U.S.C.
1817(b)(2)(A)(ii).
The minimum semiannual assessment
for each member is $1,000. 12 U.S.C.
1817(b)(2)(A)(iii). Moreover, the total
amount raised by SAIF assessments
must not be less than the total amount
that would be raised by a rate of 18 basis
points. 12 U.S.C. 1817(b)(2)(E). The
assessment revenue is subject to a
priority claim by the Financing
Corporation (FICO). 12 U.S.C.
1817(b)(2)(D).
In accordance with the statutory
requirements above, the Board adopted
the SAIF assessment rate schedule
codified at 12 CFR 327.9(d)(1). The
Board has applied this schedule in
previous assessment periods as well as
the current period from January 1, 1996
through June 30, 1996. 60 FR 63406
(December 11, 1995). The Board has
now decided to retain this schedule for
the upcoming semiannual period from
July 1, 1996 through December 31, 1996.
II. Basis for Confirmation
In setting assessment rates, the Board
must increase the reserve ratio of the
SAIF to the DRR of 1.25 percent of
estimated insured deposits. On
December 31, 1995, the SAIF had a
balance of nearly $3.4 billion and a
reserve ratio of 0.47 percent of insured
deposits, about $5.5 billion below the
amount needed to meet the DRR. The
SAIF reserve ratio continues to rise, but
the rate of progress is slowed by the
diversion of assessment revenues to
other statutory purposes. Since the
inception of the SAIF in 1989, these
diversions have totaled $7.7 billion.
Without these diversions, the SAIF
would be fully capitalized today. Some
of these demands on the SAIF have been
fully satisfied, but FICO continues to
have an annual draw of up to $793
million against SAIF assessments, until
2019.
The SAIF grew by $1.4 billion in
1995, but a large share of that growth—
$321 million—stemmed from the
reduction in loss reserves for
anticipated failures. These reductions in
loss reserves reflect recent
improvements in the health of the thrift
industry and a decline in projected
thrift failures. Further reductions in
reserves of this magnitude will not
happen again because the remaining
loss reserves are now only
approximately $111 million.
At the present pace and under
reasonably optimistic conditions, the
SAIF is not expected to meet the DRR
until 2001, which is slightly ahead of
the capitalization date projected last
year. The acceleration of the
capitalization date is attributable to
lower-than-expected loss experience in
1995 and the lowering of loss
projections for 1996 and 1997. The thrift
industry is healthy today, and no large
thrifts are expected to fail in the near
future. Thrifts earned record profits of
$7.6 billion in 1995, and the number
and assets of ‘‘problem’’ thrifts continue
to decline. Presently, 88 percent of all
SAIF members qualify for the lowest
premium under the FDIC’s risk-based
assessment system. However, it is not
known how much longer the present
favorable conditions can continue, and
it would be prudent for the SAIF to be
fully capitalized as quickly as possible
to be prepared for future uncertainties.
The Board has the option of lowering
SAIF assessment rates to a minimum
average annual assessment rate of 18
basis points until January 1, 1998, at
which time rates must return to a
minimum average annual assessment
rate of 23 basis points until the DRR is
attained. However, the lowering of rates
for this 18-month period would delay
the SAIF from reaching full
capitalization and could result in a
FICO default in 1997.
Other developments have threatened
the stability of the SAIF. Given the
recapitalization of the Bank Insurance
Fund (BIF) in 1995, the Board
subsequently lowered BIF premiums to
an average of just 0.3 basis points,
compared to the average SAIF premium
of 23.4 basis points. This disparity
between BIF and SAIF premiums of
about 23 basis points provides powerful
economic incentives for SAIF-insured
institutions to reduce their SAIF-
assessable deposits. Despite a general
ban on conversions between insurance
funds, thrifts have developed and are
pursuing means to transfer deposits
from SAIF to BIF insurance or otherwise
reduce their reliance on SAIF-assessable
deposits. During 1995, for example, one
large SAIF member shifted an estimated
$3.4 billion in deposits to a BIF-member
affiliate, and another thrift took
advantage of an Oakar accounting
anomaly that caused $3.3 billion of
SAIF deposits to be reclassified as BIF
deposits following the sale of BIF-
insured deposits.
The migration of deposits out of the
SAIF deposit base would accelerate the
capitalization of the SAIF (see Table 2),
but it would exacerbate the problems
facing the SAIF by reducing the fund’s
ability to diversify its risks. It is likely
to be the stronger SAIF members that
will be successful in shifting deposits to
the BIF. As a result, weaker thrifts and
the banks that own SAIF deposits would
be more exposed to the losses of an
insurance fund that will have a higher
risk profile.
If the Board were to lower SAIF
assessment rates to 18 basis points, it
would reduce the premium disparity
from 23 basis points to 18 basis points,
but it is unlikely that a temporary
reduction of 5 basis points would
temper the existing incentives to reduce
reliance on SAIF-assessable deposits.
Moreover, a reduction in assessment
rates, in combination with a shrinking
assessment base, would hasten a FICO
shortfall (see Tables 3 and 4).