Recommendation The staff recommends that the Board maintain the existing Savings Association Insurance Fund (SAIF) assessment rate schedule of 0 to 27 basis points (bp)1 per year. This rate schedule complies with the statutory requirements for the Board to establish a risk-based assessment system and set assessments only to the extent necessary to maintain SAIF at the Designated Reserve Ratio (DRR), currently 1.25 percent. Summary The reserve ratio for the SAIF stood at 1.37 percent as of December 31, 2002. Although not all first quarter Call Reports have been filed yet, the best available information indicates that the SAIF reserve ratio remained above 1.25 percent as of March 31, 2003. The staff believes there is a reasonable probability that the reserve ratio will remain above 1.25 percent during the upcoming semiannual assessment period. Therefore, the staff recommends maintaining the existing assessment rate schedule for this assessment period. Based on December 31, 2002, data and projected ranges for the relevant variables at December 31, 2003, this rate schedule would result in an average annual assessment rate of approximately 0.13 bp. Staff has considered a range of plausible events that could produce significant movements to the SAIF reserve ratio. In this case, the staff has taken a somewhat different approach than in prior cases submitted to the Board; however, this new approach does not result in a different recommendation than the prior methodology would have produced. The previous methodology provided a range of adverse scenarios, with little upside, and no best estimate. Our new methodology provides ranges for estimated insurance losses, primarily based on estimated changes to the contingent loss reserve for financial institution failures; changes in both interest income and in the market value of available-for-sale (AFS) securities resulting from changes in interest rates; and growth of insured deposits. The ranges resulting from the new methodology are statistically meaningful and are narrower than ranges presented with the prior methodology. Analysis In setting assessment rates since the recapitalization of the SAIF, the Board has considered: (1) the probability and likely amount of loss to the fund posed by individual insured institutions; (2) the statutory requirement to maintain the fund at the DRR, currently 1.25 percent, and (3) all other relevant statutory provisions.2 Current SAIF Reserve Ratio The SAIF reserve ratio was 1.37 percent as of December 31, 2002, the latest date for which complete data are available. Some data are available that give a preliminary indication of the SAIF reserve ratio as of March 31, 2003. The fund balance, which is the numerator of the reserve ratio, rose by $159 million to $11.906 billion (unaudited), up from $11.747 billion on December 31, 2002. This increase was primarily supported by significant unrealized gains on available-for-sale securities. As in prior periods, interest and assessment income more than covered basic operating expenses. Final data on the level of insured deposits, the denominator for the reserve ratio, are not available at this time because not all March 31, 2003, Call Reports have been filed. Beginning on May 1, staff conducted a telephone survey to determine insured deposits at 11 of the largest insured financial institutions.3 The survey results combined with preliminary information from Call Reports already received indicate that SAIF-insured deposits increased by approximately 1.01 percent in the first quarter and stood at about $869 billion as of March 31, 2003. While this information does not provide an exact amount of insured deposits, it does provide a reasonable estimate of first quarter insured deposit growth. The information preliminarily indicates that the SAIF reserve ratio stood at approximately 1.37 percent as of March 31, 2003. Final data will be published later this quarter after all March 31, 2003 Call Reports are received and edited. Projections for the SAIF Reserve Ratio Over the Next Assessment Period Staff's best estimate for the SAIF reserve ratio as of December 31, 2003 is 1.35 percent. The lower and upper bounds of the likely range for the SAIF reserve ratio as of December 31, 2003 are 1.29 percent to 1.41 percent, respectively. The entire estimated range is above the statutory requirement of 1.25 percent, so staff believes the ratio will remain above the DRR. The following is an analysis of the anticipated effect of changes in the fund balance and the rate of insured deposit growth on the reserve ratio through December 31, 2003. 1. Fund Balance Staff evaluates three significant inputs in estimating changes to the fund balance. First, staff estimates the impact of insurance losses, which are primarily losses from failed institutions. Second, staff estimates the amount of interest income that the fund will receive during the year. Third, staff projects the level of unrealized gains and losses on available-for-sale (AFS) securities that will be present at the end of the period. A. Insurance Losses Insurance losses primarily consist of two components: a contingent liability for future failures and an allowance for losses on institutions that have already failed. The Financial Risk Committee (FRC) recommends the amount of the contingent liability for failures each quarter, and this recommendation represents the FRC’s best estimate of SAIF losses from institution failures. It reflects the staff's view of those potential losses that are "probable and estimable," as required by generally accepted accounting principles. Actual results could differ from these estimates. As of December 31, 2002 the SAIF loss reserve stood at $90 million. The SAIF loss reserve declined to $69 million as of March 31, 2003. In prior cases submitted to the Board, a range of possible insurance losses was estimated by using a proportion of the FRC's two-year projected range of failed-institution assets. Beginning with this case, in addition to considering the FRC's projected range of failed-institution assets, staff is estimating a likely range of insurance losses based on projected changes in the contingent loss reserve. Several factors drive changes in the contingent loss reserve for the twelve months ending December 31, 2003. These factors include: (1) the shifting of problem institutions among different risk categories within the reserve, (2) the movement of institutions out of the reserve due to improved financial conditions, mergers, or failures, and (3) the addition of new problem institution assets to the reserve. To adequately capture the effects of these changes, staff estimated the probabilities of institutions moving within categories, entering, or leaving the contingent loss reserve. These probabilities were based on the recent history of changes to the reserve. Based on this analysis, staff estimates that the contingent loss reserve balance will range from $7 million to $112 million at year-end 2003. Table 1 shows the range of potential loss provisions based on changes in the contingent loss reserve, adjustments for net losses/recoveries due to the resolution of closed banks, adjustments for litigation losses, and adjustments for other contingencies. As a baseline scenario, staff assumes that the current balance of the contingent loss reserve correctly provides for probable and estimable losses from future failures, so that no additional provisions would be required for the remainder of 2003. Therefore, in staff’s best estimate of the reserve ratio, a zero provision is assumed. Table 1 Potential Provisions and Adjustments for Loss Allowances For the Year Ending December 31, 2003   Higher Provision Lower Provision Provision Related to Future Failures (1) $43 million $62 million Adjustment for Closed Banks Net Recoveries (2) $14 million $14 million Adjustment for Litigation Losses (3) $3 million $3 million Potential Increase in Provision for Losses $60 million ($79 million) Notes: Includes provisions required to account for the differences between the actual balance of the contingent loss reserve on December 31, 2002 ($90 million) and the December 31, 2003, balance estimated by statistical analysis. Changes in the contingent loss reserve occur from reductions in reserves after failures, reductions in reserves from improvement in institutions’ conditions, and additions of reserves due to institutions’ deterioration. Assumes a range of -5% to +5% of the estimated net recovery value of bank resolutions, $505 million as of December 31, 2002. Based on the standard deviation of changes in the contingent liability for litigation losses for the period 1998 to 2002. Staff believes that the range provided by the statistical analysis adequately represents the most likely range of additional provisions needed to cover insurance losses from future failures. However, the bounds of this range do not represent "best case" and "worst case" scenarios, and larger or smaller provisions could occur. Although larger or smaller provisions are possible, conditions in the banking industry are relatively favorable, and staff believes that current industry trends do not foreshadow widespread deterioration in the industry. The level of insurance losses will depend on the future condition of the economy and its effect on the banking industry. Staff has considered various economic scenarios and believes that a slow-growth recovery is most likely. However, the source of this recovery may have to come from business sector spending rather than consumer spending, a mainstay of previous economic growth. Furthermore, uncertainties such as concerns about corporate governance, oil price volatility, or the possibility of further terrorist attacks could adversely affect the speed of any economic recovery. B. Interest Income and Unrealized Gains and Losses on AFS Securities Staff has adopted a new methodology to identify a likely range of potential interest rate movements over the next year. In previous cases, staff modeled parallel shifts in interest rates (in the last two cases, plus 150 bp or minus 50 bp) to represent possible changes in interest rates over the assessment period. However, the prior methodology did not provide for the possibility of nonparallel yield curve shifts. Also, the shift magnitudes were designed to represent extreme changes in rates, but they were derived in a largely ad hoc manner. Furthermore, the same rates were applied throughout the entire assessment period, when in fact interest rates may change over time. Finally, the prior method precluded any estimation of the expected interest income and AFS unrealized gain/(loss) on AFS securities by providing only extreme bounds within which interest rates may fall. The staff attempted to overcome these shortcomings by adopting a more analytical methodology to projecting interest rates. In particular, the interest rate projections were derived from a statistical model using experts’ predictions as detailed in the Blue Chip Financial Forecasts. Upon identifying the ten most accurate experts over the entire 2001-2002 period, staff developed a statistical model that produced forecasts for interest rates4  for each quarter of 2003 based upon the experts’ forecasts over the same period. This methodology produced projected yield curves that changed in shape over time. Along with calculating expected yield curves, staff also calculated bounds within which interest rates are likely to fall using the statistical model. These bounds vary over the Assessment period and change in shape over time, as opposed to being parallel shifts in rates.  The bounds are consistent with the notion that the projections represent the most likely scenarios and that the true rates may be above or below the projections.5 In general, the projections indicate stable or slightly rising rates for the period under consideration. The lower bound generally reflects rates that are as much as one percentage point lower than current rates, while the upper bound reflects rates that may be approximately one-quarter percentage point to two percentage points higher than current rates. Charts showing the projected rates, upper bound, lower bound, and comparisons with the March 2003 yield curve are included as Attachment 1 to this case. Using the projected rates, staff estimates future interest income and AFS unrealized gains/(losses). Table 2 projects low, best, and high estimates for interest income and unrealized gains and losses on AFS securities using the projected rates and the bounds. Because of the significant percentage of AFS securities held in the insurance fund portfolio at this time, when interest rates change, the magnitude of the resulting change in market value of these securities dominates the effect of changes in interest income. Table 2 Potential Changes in Interest Income and Unrealized Gains (Losses) on AFS Securities December 31, 2002 to December 31, 2003 ($ in millions)   Low Estimate (1) Best Estimate (1) High Estimate (1) Interest Income 547 546 543 Unrealized Gain (Loss) on AFS Securities (2) 209 100 4 Notes: The Low Estimate is calculated using upper bound interest rates, the Best Estimate is calculated using the projected rates, and the High Estimate is calculated using the lower bound rates. Net estimated failure resolution outlays equal $255 million for the Low Estimate and zero for the Best and High Estimates. Includes actual unrealized gains on AFS securities for the period January 1, 2003 through February 28, 2003 and projected gains/losses through December 31, 2003. Staff does not anticipate dramatic changes in bond market rates. The slightly rising interest rate environment forecasted in the best estimate is consistent with (in fact, slightly lower than) the April consensus predictions in Blue Chip Financial Forecasts. The forecasted interest rates used for the best estimate are also consistent with a slow-growth economic recovery. In recent weeks, uncertainty about the direction of the economy has increased somewhat. If these uncertainties continue, or if growth fails to develop, market rates could remain steady or decline. In such a scenario, the potential negative impact to AFS securities would not be as great as projected in the best estimate. Nevertheless, as the remaining maturity of the AFS portfolio shortens, there is a strong likelihood that previously identified unrealized gains will be given back. In addition, falling interest rates would be detrimental to interest income in the long term. C. Projected Fund Balance. Table 3 summarizes the effects on the fund balance of the low, best, and high estimates assumed for insurance losses, interest income, and unrealized gains and losses on AFS securities. The projection also assumes that the current assessment rate schedule will remain in effect through December 31, 2003. Table 3 Projected Fund Balance (1) ($ in millions)   Lower Bound Best Estimate Upper Bound Assessments (2) 13  13 13 Interest Income (3) 547  546 543 Total Revenue 560  559 556 Operating Expenses(4) 150  150 150 Provision for Losses 60  0 79 Total Expenses & Losses 210  150 71 Net Income 350  409 485 Unrealized Gain (Loss) on AFS Securities (3) (209)  (100) 4 Comprehensive Income (Loss) (5) 141  309 489 Fund Balance  – 12/31/02 11,747  11,747 11,747 Projected Fund Balance – 12/31/03 11,888  12,056 12,236 Notes: Projected income and expense figures are for the twelve months ending December 31, 2003. Assumes that the current assessment rate schedule remains in effect through December 31, 2003. See also Table 2 for an explanation regarding changes in interest revenue and unrealized gain (loss) on AFS securities under these projections. Operating expenses for 2003 allocated to the SAIF are estimated based on the FDIC’s 2003 budget. Comprehensive Income is used instead of Net Income due to the magnitude of the change in market value of AFS securities that occurs with fluctuations in interest rates. See note (3) above.Columns may not add exactly due to rounding of component items. 2. Insured Deposits Since 1989, the annual growth rate for SAIF-insured deposits has been as high as 7.4 percent and as low as negative 6.5 percent (Figure 1). After declining from 1989 through 1993, insured deposits grew 2.2 percent and 2.7 percent in 1994 and 1995, respectively. After a contraction in 1996 (minus 3.9 percent) and minimal growth between 1997 and 1999 (1.0 percent, 3.8 percent, and 0.2 percent respectively), insured deposits grew by 5.2 percent in 2000, 6.1 percent in 2001, 7.4 percent in 2002, and are projected to grow at a rate of 3.9 percent in 2003. Equity market declines and volatility have factored into the recent strong growth in insured deposits. Figure 1 D It takes approximately $6.3 billion in insured deposit growth to create a 1 basis point decline in the SAIF reserve ratio, all other things held constant. Based upon the March 31, 2003, fund balance, it would take about $92.1 billion in insured deposit growth (10.7 percent) to reduce the reserve ratio to the DRR, all else being equal. Our estimates indicate that deposit growth in 2003 will be far lower than this figure. Previous cases presented to the Board estimated insured deposit growth as falling within a range of +2 percent to +6 percent. For this case, staff developed a statistical model to project an expected rate of insured deposit growth.6 The model indicates that the likely rate of insured deposit growth for 2003 is 3.9 percent. This rate of growth would bring the total of SAIF- insured deposits to $894 billion. The likely range of insured deposit growth is +0.8 percent to +7.1 percent. This range represents the confidence interval in the estimated model. Staff has backtested the model and believes that it provides a reasonable estimation of insured deposit growth. The model estimates future growth rates in insured deposits through historical growth rates in insured and total deposits and, as such, does not explicitly incorporate economic shocks into the projection. However, some events that could force insured deposits into the high range of our forecast are a depressed stock market with high volatility as well as monetary expansion. An upturn in the stock market could force insured deposits into the low range of our forecast.   3. SAIF Reserve Ratio Based on the projected SAIF balance and the projected growth of the insured-deposit base, the staff expects the SAIF reserve ratio to be within the range of 1.23 percent to 1.39 percent at June 30, 2003 (Table 4). The low estimate, which represents a 15 bp decrease in the reserve ratio from June 30, 2002, assumes a strong increase in the insured deposit base (+6 percent) and a higher interest rate scenario, resulting in a downward adjustment to the fund balance due to a reduction in the aggregate amount of unrealized gains on AFS securities (Table 3). The low estimate incorporates the high loss estimate for insurance fund losses from possible near-term failures as projected by the staff; the estimates are not intended to represent a "worst-case" scenario. The high estimate represents a 1 bp increase in the reserve ratio from June 30, 2002. It assumes slower growth (+2 percent) in the SAIF-insured deposit base, the low-loss estimate for insurance losses, and lower interest rates, resulting in an upward adjustment to the aggregate amount of unrealized gains on AFS securities. Table 4 Projected SAIF Reserve Ratios ($ in millions)     December 31, 2002   Fund Balance (Unaudited)   $11,747   Estimated Insured Deposits   $860,351   SAIF Ratio   1.3%     Low Bound(1) December 31, 2003 Best Estimate (2) December 31,2003 hUpper Bound(3) December 31, 2003 Projected Fund Balance $11,888  $12,056 $12,236 Estimated Insured Deposits $921,000 $894,000 $867,000 Estimated SAIF Ratio 1.29 1.35% 1.41% Notes: The Lower Bound refers to the scenario of higher loss provisions (see Table 1), higher interest rates (Low Estimate in Table 2), and a higher insured deposit growth rate (+7.1 percent). The Best Estimate refers to the scenario of a slight decline in loss provisions (Best Estimate in Table 1), stable or moderately rising interest rates (Best Estimate in Table 2), and the insured deposit growth rate projected by staff (+3.9 percent). The Upper Bound refers to the scenario of lower loss provisions (see Table 1), stable or moderately declining interest rates (High Estimate in Table 2), and a lower insured deposit growth rate (+0.8 percent). As mentioned in the Summary, staff used a different methodology than that used in prior cases presented to the Board to produce the range shown in Table 4 above. If the previous method had been used, staff estimates it would have shown a range of 1.26 percent to 1.35 percent. The previous methodology provided a low end to the projected SAIF range that incorporated what the FRC considered to be reasonably possible losses rather than likely insurance losses. Although the low end provided by the previous methodology remains a possible outcome, the revised methodology refines the estimation of losses due to failure in order to provide a more likely scenario. Also, unlike the previous methodology, the revised methodology considers the possibility that reserves for losses could be reduced due to improvements in the conditions of financial institutions. In addition, the revised methodology refines the estimation of the impact that changes in interest rates have on comprehensive income and provides greater analysis of potential insured deposit growth. Staff believes that the methodology presented in this case provides a more likely range for the SAIF reserve ratio. If the SAIF reserve ratio were to fall anywhere within the bounds presented in Table 4, the current rate schedule would be sufficient to maintain the reserve ratio above the DRR through December 31, 2003. Given that the SAIF reserve ratio is currently greater than 1.25 percent and that staff believes it is likely to remain so, staff recommends maintaining the existing SAIF rate schedule. Statutory Requirements Regarding the Assessment Rate Schedule The Federal Deposit Insurance Act requires that the Board set semiannual assessment rates: [W]hen necessary, and only to the extent necessary (I) to maintain the reserve ratio of each deposit insurance fund at the designated reserve ratio; or (II) if the reserve ratio is less than the designated reserve ratio, to increase the reserve ratio to the designated reserve ratio ....7 Because the SAIF reserve ratio is above 1.25 percent as of December 31, 2002, the Board can raise semiannual assessment rates for the second half of 2003 only pursuant to clause (I), to maintain the SAIF at 1.25 percent. The statutory provisions that require the FDIC to return the ratio to 1.25 percent when the ratio falls below that target have not been activated. If the reserve ratio falls below 1.25 percent, Section 7 of the FDI Act requires that the FDIC restore it to the designated reserve ratio within one year "after such rates are set". The statute does not define when "rates are set" and legislative history provides no guidance on this issue. Based on a plain reading of the statute, it seems reasonable to use the date on which the Board acts to establish rates for the upcoming semiannual period. This would comport with the intent of this provision of Section 7 that the FDIC be given one year (i.e., two semiannual periods) to increase the reserve ratio to the designated reserve ratio without being required to impose the minimum assessment of 23 basis points. Thus, for example, if final Call Report data show that the SAIF reserve ratio fell below 1.25 percent as of March 31, 2003 (and remained below 1.25 percent as of June 30, 2003), the one-year period to re-establish the reserve ratio to 1.25 percent would begin in November, 2003, when the Board sets the rates that become effective on January 1, 2004. The FDIC must do one of two things if the SAIF reserve ratio used to set the January 1, 2004, rates is below 1.25 percent. The FDIC must either: (1) set assessment rates to achieve the 1.25 percent by November 2004, which would allow two semiannual periods to re-establish the 1.25 percent – the periods beginning January 1, 2004 and July 1, 2004 (in addition to any amounts collected during the second half of 2003), or (2) the FDIC must establish a recapitalization schedule of 15 years or less and charge 23 basis point minimum average assessments. Risk-Based Assessment System The staff recommends retaining the current spread of 27 bp between the assessments paid by the best- and worst-rated institutions as well as the rate spreads between adjacent cells in the assessment rate matrix. The proposed assessment rate schedule appears in Table 5. The Board previously determined that the current rate spreads provide appropriate incentives for weaker institutions to improve their condition and for all institutions to avoid excessive risk-taking, consistent with the goals of risk-based assessments and existing statutory provisions. The current rate spreads also generally are consistent with the historical variation in failure rates across cells of the assessment rate matrix. Table 5 Proposed Assessment Rate Schedule Second Semiannual Assessment Period of 2003 SAIF-Insured Institutions Capital Group A B C 1. Well 0 bp 3 bp 17 bp 2. Adequate 3 bp 10 bp 24 bp 3. Under 10 bp 24 bp 27 bp In setting assessment rates to achieve and maintain the reserve ratio at the DRR, the Board is required to consider the effects of assessments on members’ earnings and capital. The estimated annual revenue from the existing rate schedule is $13 million, which is $10 million less than the annual amount that was projected six months ago. In recommending that the Board maintain this schedule, the staff has considered the impact on thrift earnings and capital of the current rate schedule and found no unwarranted adverse effects. The Assessment Base Distribution and Matrix Migration Table 6 summarizes the current distribution of institutions across the assessment matrix. Table 6 SAIF Assessment Base Distribution (1) Assessable Deposits as of December 31, 2002 Supervisory Subgroup and Capital Groups in Effect January 1, 2003 Capital Group   A B C 1. Well Number 1,113 90.6% 82 6.7% 18 1.5% 1. Well Base ($billion) 959 96.9% 27 2.7% 2 0.2% 2. Adequate Number 7 0.6% 4 0.3% 4 0.3% 2. Adequate Base ($billion) 1 0.1% 0 0.0% 0 0.0% 3. Under Number 0 0.0% 0 0.0% 1 0.1% 3. Under Base ($billion) 0 0.0% 0 0.0% 0 0.0% Estimated annual assessment revenue $13 million Assessment Base $990.2 billion Average annual assessment rate (bp) 0.13 basis points Notes: 1. "Number" reflects the number of SAIF members (excludes BIF-Oakar institutions). "Base" reflects all SAIF-assessable deposits. With 97.8 percent of the number of institutions and 99.7 percent of the assessment base in the three lowest assessment risk classifications of "1A," "1B," and "2A," as of January 1, 2003, the current distribution in the rate matrix reflects little fundamental difference from the previous semiannual assessment period. The current distribution reflects some shrinkage in the best-rated premium category. Since the previous assessment period, 17 institutions migrated into the "1A" risk classification (Table 7), and 26 institutions migrated out of the "1A" risk classification. Only 116 institutions are currently classified outside of the best risk classification. Overall, for all SAIF-insured institutions, the supervisory subgroup component of the risk classification was upgraded since the previous period for 16 institutions with an assessment base of $6.1 billion and was downgraded for 24 institutions with an assessment base of $6.1 billion. Table 7 SAIF Migration To and From Assessment Risk Classification "1A" Institutions entering "1A" Number Base ($billion) Due to capital group reclassification only 3 0.5 Due to supervisory subgroup reclassification only 14 5.3 Due to both 0 0.0 Total 17 5.8 Institutions leaving "1A" Number Base ($billion) Due to capital group reclassification only 4 1.7 Due to supervisory subgroup reclassification only 21 4.9 Due to both 1 0.1 Total 26 6.7 Notes: Reflects SAIF-insured institutions that moved in and out of assessment risk classification "1A" from the second semiannual assessment period of 2002 to the first semiannual assessment period of 2003. The numbers only include institutions that were rated in both periods. Other Issues FICO Assessment. The Deposit Insurance Funds Act of 1996 (Funds Act) separates the Financing Corporation (FICO) assessment from the FDIC assessment, so that the amount assessed on individual institutions by the FICO is in addition to the amount paid according to the SAIF rate schedule. All institutions are assessed the same rate by FICO, as provided for in the Funds Act, and the FICO rate is updated quarterly. The FICO rate for the first quarterly payment in 2003 will be determined using March 31, Staff Contacts Karen Denu, Chief, Assessments Evaluation Section, Division of Insurance (202) 898-3810, or Claude Rollin, Counsel, Legal Division (202) 898-8741. For FICO assessment information, please contact Richard Jones, Chief, Assessments Implementation Section, Division of Insurance, at (202) 898-6592. Attachment 1 - Interest RateScenarios [D] [D] [D] 1 Although the current effective rate schedule is 0 to 27 basis points, the base rate schedule, established in 1995, is still 4 to 31 basis points. The FDIC may alter the existing rate structure and may change the base SAIF rates by rulemaking with notice and comment. Without a notice-and-comment rulemaking, the Board has authority to increase or decrease the effective rate schedule uniformly up to a maximum of 5 bp, as deemed necessary to maintain the target DRR. 2 The Board is required to review and weigh the following factors when establishing an assessment schedule: a) the probability and likely amount of loss to the fund posed by individual institutions; b) case resolution expenditures and income; c) expected operating expenses; d) the revenue needs of the fund; e) the effect of assessments on the earnings and capital of fund members; and f) any other factors that the Board may deem appropriate. These factors directly affect the reserve ratio prospectively and thus are considered as elements of the requirement to set rates to maintain the reserve ratio at the target DRR. 3 As required by the Paperwork Reduction Act, staff applied for and received approval from the Office of Management and Budget to conduct a telephone survey of the largest institutions that have a 45-day deadline to submit their Call Reports. 4 The rates modeled were the Fed funds rate and the rates on the 3-month Treasury bill, the 6-month Treasury bill, the 1-year Treasury bill, the 2-year Treasury note, the 5-year Treasury note, and the 10-year Treasury note. 5 There are a few instances where the confidence bounds are truncated at a lower bound of 0.25. 6 The model is a regression model where the current growth rate in insured deposits is estimated as a linear function of the previous growth rate in insured deposits as well as the current and previous growth rates of total (insured and uninsured) deposits. The range (+0.8%, +7.1%) corresponds to a 95% confidence level. In other words, we can be sure with 95% confidence that the actual growth rate in insured deposits, over the year 2003, will lie within this range. The growth rate predicted by the model (thus, the most likely rate) is the midpoint of this range (3.9 % annual growth). 7 Section 7(b)(2)(A) of the FDI Act (12 U.S.C. § 1817(b)(2)(A)). Last Updated 05/21/2003 insurance-research@fdic.gov

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