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Federal Deposit Insurance Corporation

Division of Supervision

550 17th Street NW, Washington, DC 20429

Insurance Assessments
TO:
SUBJECT:

FIL-40-96
June 11, 1996

CHIEF EXECUTIVE OFFICER
Assessment Rates for the
Second Semiannual Assessment Period of 1996

BIF Assessment Rates

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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.

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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 longrun 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.

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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 Register notice.
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.

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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 uncertainties.

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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.

Arthur J. Murton
Director

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Attachment:
BIF: PDF Format (118 kb, PDF help or hard copy), HTML Format
SAIF: PDF Format (138 kb, PDF help or hard copy), HTML Format
Distribution: Insured Banks and Savings Associations

Last Updated 07/13/1999

communications@fdic.gov