Each depositor insured to at least $250,000 per insured bank

• On January 29, Joseph H. Neely, former Mississippi banking commissioner, was sworn in as a member of the FDIC Board of Directors. His appointment brought the Board to its full membership of five directors for the first time since August 1992.



• On February 9, at a FDIC symposium on derivatives, Chairman Helfer announced new efforts to monitor and assess risk at insured institutions. The efforts were designed to enhance the FDIC’s traditional approach to risk assessment allowing the agency to respond more quickly and efficiently to emerging risks. The FDIC developed specific guidelines for examiners on how to factor relevant economic and other data into their risk evaluations of specific institutions.



• On July 16, the FDIC’s Legal Division issued guidance to help bank and thrifts decide whether the stored-value cards they issue qualify for federal deposit insurance. The FDIC Board of Directors approved General Counsel Opinion No. 8 that states in most cases the stored-value cards are not protected by deposit insurance because the issuing institution would typically maintain a single pooled account to hold the funds represented by all their customers’ stored-value cards.



• On October 29, responding to the FDIC’s declining workload, Deputy to the Chairman and Chief Operating Officer Dennis F. Geer outlined the Corporation’s plans for downsizing in 1997 and subsequent years.
  
• On December 8, the FDIC created the new Division of Resolutions and Receiverships (DRR), to handle the reduced levels of resolution and liquidation work projected over the next several years. The new division represented a merger of the Division of Depositor and Asset Services and the Division of Resolutions.



• On December 10, the FDIC unveiled a new service called “Institution Directory,” which enables the public to obtain information about individual banks and savings institutions via the Internet.
  
• On December 20, the FDIC Board adopted the interagency Federal Financial Institutions Examination Council’s revised “CAMELS” rating system for assessing the soundness of financial institutions on a uniform basis. Along with: capital (C), asset quality (A), management (M), earnings (E), and liquidity (L), the banking agencies added a sixth component to the rating system – sensitivity to market risk (S).

The U.S. economy grew rapidly in 1996, as GDP expanded by a robust 5.6 percent. Unemployment reflected this favorable trend, declining 20 basis points from 5.6 percent to 5.4 percent. An additional 2,272,000 individuals found employment during 1996. Reflecting the improved economy, new home sales spiked by 13.5 percent during 1996 to 757,000. Also, new housing starts rose 9.1 percent. This strong performance in the residential sector is especially impressive in light of the 63 basis-point rise in the 30 year mortgage rate from 7.51 percent to 8.14 percent. Moving in the opposite direction was the discount rate which declined modestly from 5.25 percent to 5 percent during the year. Another favorable trend was the decline in the office vacancy rate from 13.6 percent to 12 percent.^19-1

It was a very strong year for commercial banks as profits grew, and there were high levels of returns on both equity and assets. Commercial bank assets also grew this year, however slower than in 1995. The increase in assets was due largely to an increase in loan volume that was spurred by the strong economy. Net income increased by 8 percent and return on assets experienced a new high. Security holdings grew less than 1 percent. Both interest income and interest expense fell. Non-interest income increased 17 basis points and non-interest expense increased 8 basis points as a percentage of assets. The increase in non-interest expense was attributed to the restructuring costs of several large bank mergers.

Commercial and Industrial loans grew by 7.25 percent. Good conditions in the real estate market, an increase in real estate prices, and a reduction in vacancy rates allowed commercial real estate loans to increase 7.75 percent. The balance of consumer loans increased 5 percent. Delinquency and charge-off rates were low in business loans, especially in the real estate area. However, household delinquency rates continued to rise. Core deposits increased slowly which was partly be explained by low yields on bank deposits relative to alternative investments.^19-2

At end of 1996, there were 11,484 financial institutions in the United States and 117 institutions on the problem bank list. ^19-3 Table 19-2 shows the number and total assets of FDIC insured institutions, as well as their profitability as of the end of 1996.

With the recapitalization of the BIF in May 1995, the FDIC Board of Directors lowered the assessment rates for BIF-assessable deposits, creating a significant disparity in the assessment rates paid to the BIF and the SAIF. This disparity created incentives for institutions to move deposits from the SAIF to the BIF which, in turn, raised the question of whether a shrinking SAIF-assessable deposit base could continue paying the interest on debt and also capitalize the SAIF.

To address the financial problems of the SAIF, Congress passed the Deposit Insurance Funds Act of 1996 (DIFA), which became law on September 30, 1996The DIFA required the FDIC to impose a one-time special assessment to capitalize the SAIF on October 1, 1996, at the statutorily required Designated Reserve Ratio of 1.25 percent of insured deposits.