Assessment Rates for the
Second Semiannual Assessment Period of 1996
The FDIC Board of Directors voted on May 14, 1996, to maintain
the existing assessment rates on deposits assessable by the
Bank Insurance Fund (BIF) and the Savings Association Insurance
Fund (SAIF) for the second semiannual assessment period of
1996. Attached are overviews of the assessment rates for BIF-
and SAIF-insured institutions, as well as the Federal Register
notices explaining the Board's decisions.
BIF Assessment Rates
For the second semiannual period of 1996, insured institutions
will continue to pay annual assessment rates ranging from
0 to 27 cents per $100 of BIF-assessable deposits, subject
to the statutory requirement that all institutions pay a minimum
of $2,000 annually for federal deposit insurance (Attachment
A). Based upon year-end 1995 data, these rates would result
in an average annual BIF assessment rate of approximately
0.29 cents per $100 of assessable deposits and would generate
annual revenues of approximately $72 million.
In setting BIF assessment rates, the Board sought to balance
three requirements: (1) the long-run funding requirements
of the BIF, (2) the statutory requirement to maintain a risk-based
deposit insurance system, and (3) the statutory requirement
to maintain the BIF reserve ratio at the target Designated
Reserve Ratio (DRR). Although historical experience suggests
that an effective assessment rate of four to five cents per
$100 of domestic deposits is appropriate over the long run,
the Board determined that the highest-rated institutions should
be charged the minimum assessment for the second semiannual
period of 1996 given current industry conditions, the financial
health of the BIF and the statutory requirement to maintain
the target DRR.
The BIF reserve ratio stood at 1.30 percent (unaudited) as
of December 31, 1995, and it is likely that the ratio will
remain above the 1.25 percent target throughout 1996 if insurance
losses and deposit growth vary within their historical ranges.
Not captured in the historical ranges for these variables,
however, is a significant possibility of high BIF-insured
deposit growth arising from two sources: (1) a substitution
of deposits for other types of funding in response to the
dramatic reductions in BIF assessment rates during the second
half of 1995; and (2) a substantial increase in deposit migration
from the SAIF to the BIF, due to the prospect of a long-term,
large premium differential between the insurance funds and
uncertainty related to the future stability of the SAIF.
Despite these concerns, the Board decided not to adjust BIF
assessment rates at this time. Rather, deposit flows and trends
in deposit growth rates will be monitored closely in preparation
for future decisions regarding BIF assessment rates.
In the interim, existing rates will be maintained by utilizing
the "adjustment factor" established in August 1995, which
permits the Board to change assessment rates by a maximum
of five cents without first seeking public comment. The adjustment
factor was employed in November 1995 to reduce BIF assessment
rates to their current levels, and it again has been employed
in order to maintain existing assessment rates for the second
semiannual period of 1996, as explained in the attached Federal
SAIF Assessment Rates
SAIF members will continue paying premiums on a risk-related
basis of 23 cents per $100 to 31 cents per $100 of assessable
deposits, as shown in Attachment B. The average rate is expected
to be 23.4 cents per $100 of assessable deposits. Because
the SAIF remains seriously undercapitalized, SAIF members
will continue to pay higher rates than BIF members.
At year-end 1995, the SAIF had a balance of nearly $3.4 billion,
or about 47 cents in reserve for every $100 of insured deposits,
and needed an additional $5.5 billion to be fully capitalized.
At the current pace and under reasonably optimistic assumptions,
the SAIF is not expected to reach the minimum reserve ratio
of 1.25 percent until 2001.
The thrift industry is healthy today, and no large thrifts
are expected to fail in the near future. 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
Moreover, the SAIF continues to face major problems that
must be addressed successfully before SAIF premiums can be
lowered. Notably, the premium disparity between SAIF and BIF
assessment rates, which currently is about 23 cents per $100
of assessable deposits, creates an incentive for institutions
to reduce their SAIF-assessable deposits. Although a shrinking
SAIF assessment base would accelerate the capitalization of
the SAIF, it would exacerbate the problems facing the SAIF
by reducing its ability to diversify risk.
Pending enactment of a comprehensive legislative solution
to the problems of the SAIF, the Board determined that the
current SAIF assessment rate schedule should be maintained.
For more information, please contact any of the FDIC staff
members listed in the two attached Federal Register notices
on pages 26078-26079, and page 26083, respectively.