The FDIC administers two deposit insurance fundsthe Bank Insurance Fund (BIF) and
the Savings Association Insurance Fund (SAIF). The FDIC also manages a third fund, the
FSLIC Resolution Fund (FRF), which fulfills the obligations of the former Federal Savings
and Loan Insurance Corporation (FSLIC). The FRF assumed responsibility for the Resolution
Trust Corporations (RTC) assets and obligations on January 1, 1996. For more information about the three funds, click here.
The major development
of the year was the passage of legislation to put the SAIF on sound footing, as described
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 Financing Corporation (FICO) 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, 1996. The 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 (DRR) of 1.25 percent of insured deposits. The FDIC
Board set the special assessment at 65.7 cents per $100 of SAIF-assessable deposits. With
the SAIF fully capitalized, the Board approved a reduction in SAIF assessment rates
effective October 1,1996.
The DIFA also eliminated the $1,000
minimum semiannual assessment and separated the FICO assessment from the SAIF assessment.
The amount that the FICO assesses on the deposits of individual institutions is now added
to the amount institutions pay for deposit insurance according to the FDICs
risk-related assessment rate schedules. At the same time, the new law expanded the FICO
assessment base to include all FDIC-insured institutions, beginning January 1,1997. The
DIFA specified that the FICO rate for BIF-assessable deposits be one-fifth the rate for
SAIF-assessable deposits until the insurance funds are merged, or the end of 1999,
whichever occurs first. The FICO assessment will then be shared pro rata by all insured
institutions. The FICO assessment rates for the first semiannual period of 1997 were
approved by the FDIC Board on December 11, 1996, at an annual rate of 1.30 cents per $100
of BIF-assessable deposits and 6.48 cents per $100 of SAIF-assessable deposits. For more
information about the new law, click here.
Bank Insurance Fund
With banks experiencing another
record-breaking year of profitability and only a handful of bank failures, 1996 was
another positive year for the BIF. These favorable conditions enabled the FDIC Board to
set the lowest average assessment rate in the history of FDIC insurance, with the average
1996 annual BIF assessment rate being 0.2 cents per $100 of assessable deposits, down from
12 cents per $100 in 1995. In recent years, the BIF has climbed steadily from a negative
balance of $7 billion in 1991 to $26.9 billion in 1996, its third consecutive record
year-end high. The 1996 year-end balance represents a 5.5 percent increase over the 1995
balance of $25.5 billion. The reserve ratio increased from 1.30 to 1.34 percent of insured
deposits during 1996.
BIF-insured deposits grew by 2.8
percent in 1996. In the first half of the year, deposits increased by less than 1 percent
(annualized), but jumped by 5.1 percent (annualized) during the second half. About half of
the growth in the second half of the year was due to a provision of the DIFA concerning
certain Oakar institutions (institutions that are members of one insurance
fund, but hold deposits insured by the other fund). The new law caused some
SAIF-assessable deposits held by these institutions to become BIF-assessable deposits. The
strong deposit growth in the second half of 1996 slowed the increase in the reserve ratio
for the year.
For the first semiannual assessment
period of 1996, the Board lowered the rates from a range of four to 31 cents annually per
$100 of assessable deposits, to a range of 0 to 27 cents per $100. With this drop in the
rate schedule, the highest-rated institutions (93.4 percent of BIF-insured institutions)
paid only the $1,000 minimum assessment for the first semiannual assessment period of
1996. Depending on their risk classification, other institutions paid between three and 27
cents per $100 of assessable deposits. The Board approved the same rate schedule for the
second semiannual period of 1996, when 94.4 percent of BIF-insured institutions were in
the lowest-risk category. The FDIC collected the fourth-quarter assessment before the DIFA
eliminated the minimum assessment. As a result, the FDIC refunded $4.4 million of revenue
collected, plus interest.
For the first time since 1986,
interest on U.S. Treasury obligations ($1.3 billion) surpassed assessment revenue ($73
million) as the primary source of revenue fueling the BIFs growth. This was a direct
result of the lowered assessment rate schedule and the concentration of institutions in
the lowest-risk category. Interest income was 77 percent of total BIF revenue, while
assessment revenue was only four percent.
continued to be minimal, with only five BIF-insured failures in 1996 and failed-bank
assets totaling $183 million. One failure was an Oakar institution, which had a portion of
its deposits insured by the SAIF. In 1995, six BIF-insured banks with $753 million in
assets failed. Estimated insurance losses in 1996 were $43 million, the lowest since 1980
when 11 banks failed with insurance losses totaling $31 million. Estimated losses from
1995 BIF failures were $104 million.
Investments in U.S. Treasury obligations continued to be the main components of
the BIFs total assets, at 81 percent, rising slightly from 79 percent during the
previous year. The BIFs financial position continued to improve as cash and
investments at year-end were 53 times the BIFs total liabilities, up from 30 times
the BIFs total liabilities in 1995.
With the special assessment adding
$4.5 billion to the SAIF on October 1, the fund ended the year with a balance of $8.9
billion, a 165 percent rise over the $3.4 billion balance at year-end 1995. The
SAIFs reserve ratio grew from .47 percent to 1.30 percent of insured deposits during
1996. Insured deposits shrank by 4.0 percent during 1996; without the Oakar provision in
the DIFA noted previously, insured deposits would only have shrunk by 0.7 percent.
With the SAIF fully
capitalized, the Board voted on December 11 to lower the funds annual assessment
rates from a range of 23 to 31 cents per $100 of assessable deposits, to a range of 0 to
27 cents per $100. Based on year-end 1996 deposit data, this insurance premium reduction
is expected to save the industry more than $1.6 billion a year. Because the SAIF became
fully capitalized on October 1, 1996, the FDIC refunded the fourth quarter payments that
had been made under the old rate schedule, less the amounts payable to FICO and needed to
maintain the risk-based assessment system. To that end, the Board established a dual set
of rates for the final quarter of 1996. The Board set an interim rate schedule of 18 to 27
cents per $100 of assessable deposits for SAIF-member savings associations in the fourth
quarter. The SAIF-assessable deposits of Sasser institutions (savings
associations that converted to a bank charter, but remained members of the SAIF) and
BIF-member Oakar institutions were not subject to the FICO assessment during 1996.
Accordingly, the Board applied the new 1997 rates to these institutions from October
1,1996, forward. These rates ranged from 0 to 27 cents per $100 of assessable deposits.
Apart from the special assessment,
the SAIF realized $727 million in net assessment income in 1996. Interest income for 1996
was only $254 million (five percent of total revenue), but is likely to rise significantly
as the SAIF earns interest on its newly capitalized fund balance. As in 1995, failures
continued to be a minimal expense in 1996. Only one SAIF-insured institution failed, with
an estimated loss to the SAIF of $14 million.
FSLIC Resolution Fund
The FRF was established by law in
1989 to assume the remaining assets and obligations of the former FSLIC arising from
thrift failures before January 1, 1989. Congress placed this new fund under the management
of the FDIC when it abolished the FSLIC on August 9, 1989.
Congress authorized $827 million in
appropriations to the FRF in fiscal year 1995, of which $636 million was still available
at calendar year-end 1996. The FRF only uses appropriated funds when other sources of
funds are insufficient. During 1996, funds generated from asset collections and interest
income provided sufficient funding so that appropriated funds were not needed.
The FRF assumed responsibility for
all RTC assets and obligations on January 1, 1996. As the FRFs manager, the FDIC
will sell the remaining assets and settle the obligations of the RTC as it has done for
the FSLIC. RTC assets in liquidation totaled $4.4 billion at year-end 1996, down from $7.7
billion at year-end 1995. The FRF also manages the reserves set aside to support the sale
of securities collateralized by RTC assets. These credit enhancement reserves
dropped from $6.8 billion in 1995 to $5.8 billion. Borrowings from the Federal Financing
Bank declined from $10.5 billion to $4.6 billion as of year-end 1996.