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
Federal Register / Vol. 61, No. 102 / Friday, May 24, 1996 / Rules and Regulations 26083

12 CFR Part 327

Assessments; Retention of Existing

Assessment Rate Schedule for SAIFMember 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 SAIFassessable 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 BIFinsured 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).
26084 Federal Register / Vol. 61, No. 102 / Friday, May 24, 1996 / Rules and Regulations

In recommending that SAIF

assessment rates remain unchanged, the

Board has considered the impact on the

earnings and capital of SAIF members

and found no unwarranted adverse

effects. As discussed earlier, the

earnings and capital of SAIF members

are satisfactory though the Board has

recognized that the full impact of the

premium disparity may not yet be

realized.

Pending enactment of a

comprehensive legislative solution to

the problems facing the SAIF, the FDIC

must operate within the existing

statutory framework. For the reasons

discussed above, the Board has decided

to retain the current SAIF assessment

rate schedule of 23 to 31 basis points in

order to enable the SAIF to reach full

capitalization as quickly as possible.

The schedule to be applied for the

semiannual period from July 1, 1996,

through December 31, 1996, is codified

at 12 CFR 327.9(d)(1).

By order of the Board of Directors.

Dated at Washington, D.C., this 14th day of

May, 1996.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Deputy Executive Secretary.

BILLING CODE 6714–01–P
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26086 Federal Register / Vol. 61, No. 102 / Friday, May 24, 1996 / Rules and Regulations
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26088 Federal Register / Vol. 61, No. 102 / Friday, May 24, 1996 / Rules and Regulations

[FR Doc. 96–12884 Filed 5–23–96; 8:45 am]

BILLING CODE 6714–01–C