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

• On April 4, FDIC Board member Eugene A. Ludwig’s tenure on the Board ended with the expiration of his five-year term as Comptroller of the Currency.



• On April 29, a two-day symposium, Managing the Crisis: The FDIC and RTC Experience, was presented. Current and former FDIC and Resolution Trust Corporation executives discussed the strategies they used to resolve trouble banks and thrifts during the financial crisis of the 1980s and 1990s. Between 1980 and 1994, a total of 1,617 banks and 1,295 thrifts failed and were resolved. Books developed as part of the symposium would soon rank among the most popular publications in the FDIC history.



• On May 26, Donna Tanoue was sworn in as the 17th Chairman of the FDIC. Andrew C. Hove, Jr., who had served as Acting Chairman since June 1997, resumed his position as the agency’s Vice Chairman.



• By May 31, FDIC bank examiners, with assistance from state bank regulators, completed the first round of on-site Year 2000 assessments for FDIC supervised institutions, and also all data service providers and vendors that FDIC is responsible for examining. By year-end, approximately 97 percent of FDIC supervised institutions were making satisfactory progress toward achieving Year 2000 readiness.



• On June 18, the FDIC announced its “Suspicious Internet Banking” web site designed to help detect potentially fraudulent Internet banking activity. The site provides the public and the industry with a “user friendly” vehicle for reporting entities on the Internet that may be misrepresenting themselves as legitimately chartered or federally insured depository institutions.



• On September 9, the FDIC hosted the International Deposit Insurance Conference in Washington, DC to discuss the role of deposit insurance in sustaining public confidence in the world’s banking system, drawing top government officials from 62 countries, including the leaders of deposit insurance agencies in more than 20 nations.



• On September 30, Joseph H. Neely resigned as a member of the FDIC’s Board of Directors. He had served since January 29, 1996.



• Also on September 30, a “user friendly” electronic deposit insurance estimator called “EDIE” became available on the FDIC’s web site. The service enables consumers and financial institutions employees to quickly check whether a depositor with multiple accounts at the same institution has exceeded the $100,000 statutory limit for deposit insurance coverage.



• On December 8, John D. Hawke, Jr., was sworn in as the 28th Comptroller of the Currency, filling the FDIC Board seat vacated by Eugene A. Ludwig.

The U.S. economy continued to speed along during 1998, registering a 5.6 percent expansion in GDP growth. Unemployment declined another 30 basis points to 4.4 percent and the actual count of employed persons rose 1.4 percent to 132,581,000. Inflation remained tame, as the cost of living advanced by a modest 1.7 percent. Encouraged by the low inflation rate, the discount rate was lowered by 50 basis points to 4.5 percent. Remarkably similar was the decline in interest rates on 30-year mortgages which fell by 49 basis points to 7.02 percent. Given this rather idyllic environment, both new home sales (up 10.2 percent) and new housing starts (up 9.7 percent) rose sharply. Office vacancy rates fell another 100 basis points to 8.7 percent, as all aspects of the economy did well.^21-1
The commercial banking industry faired well, but not as well as in previous years. Both returns on assets and equity were down, 5 basis points, and 75 basis points, respectively. There was a decline in rates earned on interest-bearing assets. In 1998, 5.8 percent of all commercial banks reported net losses; compared to 4.9 percent in 1997.

Commercial bank earnings totaled $61.5 billion; an increase of 3.9 percent or $2.3 billion from 1997. Bank assets grew by 8.25 percent. Security holdings rose 8.33 percent. Bank equity grew 9.5 percent. Net-interest income declined 15 basis points. The net interest margin also declined to a level not seen in seven years. There were two main reasons attributed to the decline: a shift in bank assets away from high-yielding assets, and a shift in bank sources of funding toward more expensive liabilities. Non-interest income as a percentage of assets rose 18 basis points. Non-interest expense rose due to merger and restructuring charges, increases in data processing services, and a rise in wage/occupancy costs.

Overall, loans increased 9 percent. Commercial and Industrial loans expanded by 13 percent and commercial real estate loans rose 11.3 percent, which can be attributed to continuing strong conditions in the property market (especially in the office sector). Loans to consumers expanded by 1 percent.

Bank stock prices rose during the first half of the year as fear of Asian crisis diminished. However, there was a sharp decline during the middle of the year due to the Russian debt default. By the end of the year, fears eased and bank stock prices recovered to around the price they were at the beginning of year.

Core deposits grew 7 percent and managed liabilities increased 9.5 percent. Many bank mergers occurred in 1998, resulting in the top 100 banks controlling 70 percent of industry assets.^21-2

At end of 1998, there were 10,489 financial institutions in the United States and 84 institutions on the problem bank list.^21-3 Table 21-2 shows the number and total assets of FDIC insured institutions, as well as their profitability as of the end of 1998.

With banks experiencing another highly profitable year and only three bank failures, 1998 was another positive year for the BIF. The BIF continued to grow steadily and stood at $29.6 billion at year-end 1998. The 1998 fund balance represents a 4.7 percent increase over the 1997 balance of $28.3 billion. BIF-insured deposits grew by 4.1 percent in 1998, yielding a reserve ratio of 1.38 percent of insured deposits at year-end 1998, unchanged from year-end 1997.
The SAIF ended 1998 with a fund balance of $9.8 billion, a 5 percent increase over the year-end 1997 balance of $9.4 billion. Estimated insured deposits increased by 2.8 percent in 1998. During the year, the reserve ratio of the SAIF grew from 1.36 percent of insured deposits to 1.39 percent. More than 95 percent of BIF members and 90 percent of SAIF members paid no deposit insurance premiums for the first half of 1998.