• In February, the FDIC unveiled its World Wide Web page on the Internet, providing the public with ready access to FDIC consumer information, press releases, and statistics on banking.



• On April 1, the FDIC began a system to invoice and collect deposit insurance premiums electronically. The new arrangement will make the process of calculating and collecting insurance assessments more efficient and less burdensome. With the new method, the FDIC experienced an error rate of less than 0.1 percent, a significant improvement over the error rate of 8 to 13 percent under the previous manual, paper-based system. The new process further proved its value in September 1995, when the FDIC used it to refund $1.5 billion to BIF-insured institutions within 10 days of a recapitalization announcement.
  
• On Apri1 24, for the first time in the agency’s 61-year history, the Board approved a corporate-wide strategic plan. Major goals centered on identifying and addressing risks to the insurance funds and improving communications with the public.
  
• On May 17, the FDIC announced a reorganization that included the creation of four new divisions: the Division of Insurance (DOI) to identify risks to the insurance funds; the Office of the Ombudsman (OO) to respond to questions or concerns about the FDIC; the Division of Administration (DOA) which consolidated the three separate offices of personnel management, corporate services, and staff training; and the Office of Policy Development (PD) to coordinate policy development among all FDIC Divisions and Offices, to evaluate the policy implication of regulatory and legislative proposals, and to quickly update corporate positions on emerging issues.
  
• On July 28, the last two FDIC-insured bank closings of 1995 occurred, bringing the total for the year to six, which was the lowest number since 1977.
  
• On August 8, the FDIC Board voted to reduce premiums paid by institutions insured by the Bank Insurance Fund in recognition of the health of the banking industry and the increased strength of the fund. The Board did not reduce assessment rates for the Savings Association Insurance Fund (SAIF), which remained seriously undercapitalized.
  
• On November 2, the FDIC, the Federal Reserve Board, and the New York State Banking Department issued joint cease-and-desist orders against The Daiwa Bank, Limited, Osaka, Japan and its insured New York subsidiary, Daiwa Bank Trust Company. In September, Daiwa disclosed approximately $1.1 billion in securities trading losses at its New York City branch after having concealed those losses from bank regulators.
  
• On November 9, the FDIC announced a program to reduce staffing levels by offering many career employees incentives to retire or to voluntarily seek other employment.
  
• On November 14, the FDIC reduced insurance premiums for a second time for BIF-insured institutions. The rates for the seriously undercapitalized SAIF fund were not reduced.
  
• On December 22, Mississippi Banking Commissioner Joseph H. Neely was confirmed by the U. S. Senate to be a member of the FDIC Board of Directors. He was sworn in on January 29, 1996. This marked the first time since August 1992 that all five Board positions were filled.
  
• On December 31, the Resolution Trust Corporation (RTC), created in 1989 to manage and sell failed savings associations, officially closed. All remaining assets and liabilities were transferred to the FDIC-managed FSLIC Resolution Fund (FRF). The FRF was established by law in 1989 to assume the assets and obligations of the former FSLIC thrifts that failed prior to January 1, 1989.

The U.S. economy grew by an impressive 4.9 percent during 1995, as measured by GDP. Even so, unemployment rose slightly from 5.5 percent to 5.6 percent. However, this slight rise reflects a sharp increase in the number of persons seeking employment. The number of employed persons rose by roughly 360,000, or 2.9 percent, to 125,088,000. New home sales were virtually unchanged from the 1994 level of 670,000, down to 667,000. By contrast, the number of new housing starts fell by 103,000 or 7.1 percent during the period.^18-1

Inflation was meager at 2.5 percent, and the interest rate environment was mixed. The discount rate rose 50 basis points from 4.75 percent to 5.25 percent, while 30-year mortgage rates fell by 202 basis points from 9.53 percent to 7.51 percent. Because new housing starts during the previous year totaled more than twice the number of new homes sold, home builders backed off in new starts from the 1994 level. While home builders paused a briefly to allow demand to catch up to supply, office space demand actually increased, producing a 140 basis-point drop in the vacancy rate from 15 percent to 13.6 percent.

Commercial banks experienced continued increases in profitability and asset growth. Net income increased almost 10 percent to $49 billion. Loan quality was also good, and delinquency and charge-off rates remained low in all areas except consumer and credit card loans.

Commercial bank assets increased by 8 percent. Equity capital also grew $37.5 billion or 12 percent. Non-interest income increased by $6.2 billion, or 10.6 percent, reflecting strong growth in fee income. Non-interest expense increased only 4.5 percent. This can be attributed to the improvement in operating efficiency which was largely due to decreases in employee costs and occupancy costs relative to total revenue.

Commercial and Industrial loans experienced their largest increase in the last 15 years. In addition, commercial real estate loans increased by 5.75 percent. Consumer loans and consumer debt also increased. The increase in both of these areas is related to the rise in credit card use. Credit cards were becoming more accepted by consumers in ‘nontraditional’ places, such as the grocery store.

Banks depended on managed liabilities as a source to fund asset growth. Previously, banks used borrowings from abroad. However, because of the decrease in deposit insurance premiums, banks were able to use large time deposits as source of funds for the first time. Core deposits became significant source of funds, which had previously been declining last year. Savings accounts rose due to the establishment of ‘sweep accounts.’ ^18-2

At end of 1995, there were 12,009 financial institutions in the United States and 193 institutions^18-3 on the problem bank list.^18-4 Table 18-2 shows the number and total assets of FDIC insured institutions, as well as their profitability as of the end of 1995.

During 1995, the FDIC resolved six FDIC-insured institutions, and the failed institutions had combined assets of approximately $802.1 million. The size of the bank failures in 1995 was the lowest since 1980 when failed bank assets totaled $239.3 million, and the number of failures was the lowest since 1977 when there were also only six failures.

A recent estimate of losses per transaction type is shown in Table 18-3.

Table 18-3

In the six financial institutions that failed in 1995, deposits totaled $776.4 million in 47,651 deposit accounts. Dividends paid on all active receiverships totaled over $3.9 billion in 1995.

There have been a total of 2,127 ^18-5 insured financial institution resolutions since the FDIC began operations in 1934. Of this total, 1,445 were P&A transactions, 79 were open bank assistance transactions, and 603 were deposit payoff transactions.

Total disbursements by the FDIC since January 1, 1934, have amounted to $104.3 billion. Of that amount, actual and projected recoveries are anticipated to be approximately $67.4 billion, which equates to a projected loss of $36.9 billion to the BIF fund.

Asset Disposition

At the beginning of 1995, the FDIC held $16.7 billion in assets from failed institutions, and acquired some $550 million in assets from the six financial institutions that failed during the year. The FDIC successfully collected, sold, or otherwise resolved 40 percent, or almost $7 billion, of its asset inventory during the year. This included 2,687 real estate properties which were sold for $573.3 million, representing 94.3 percent of their appraised value. Also included were over 23,750 loans and other assets totaling $2 billion that were sold in sealed-bid and other asset marketing events, resulting in sales proceeds of 97.7 percent of the appraised value of these assets. At year-end 1995, the FDIC held $10.3 billion in assets for liquidation. That included $8.8 billion in BIF assets, $6 million in SAIF assets, and $1.5 billion in FRF assets.

The congressional appropriation for affordable housing was reduced from $15 million to $3.7 million during the year. Notwithstanding this reduction, the FDIC was able to help qualified buyers purchase 412 single-family properties during the year. In addition, eight multifamily properties containing 225 units were sold to nonprofit organizations and public agencies.

Other financial recoveries during the year included $252 million from professional liability settlements or judgments, and $7.6 million in collections from court-ordered restitution from individuals convicted of bank fraud. Table 18-4 shows the FDIC’s assets in liquidation and Chart 18-1 shows the asset mix.