The FDIC administers two deposit insurance funds, the
Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF). The agency
also manages a third fund fulfilling the obligations of the former Federal Savings and
Loan Insurance Corporation (FSLIC), called the FSLIC Resolution Fund (FRF). On January 1,
1996, the FRF assumed responsibility for the assets and obligations of the Resolution
Trust Corporation (RTC).
The economic environment in 1998 remained favorable for the
banking and thrift industries, resulting in relatively few problem institutions, high
profitability and increased capitalization. During the third quarter, a default in Russian
debt and the resulting difficulties with hedge funds, such as those experienced by Long
Term Capital Management, LP, illustrated the speed with which financial market volatility
and foreign sector developments can affect insured institutions. During 1998, some insured
institutions continued to increase their exposures to an economic downturn through
higher-risk lending and other practices. This is suggested by evidence of weakening
underwriting standards, narrower interest-rate spreads, and increased concentrations in
higher-risk loans. The potential effect of these trends on the deposit insurance funds
depends on the nature of any national or regional economic downturns.
An overview of the funds performance during 1998 follows. (Full details about
the funds appear in the financial statements).
For more details on the Bank Insurance Fund (BIF), please click here.
For more details on the Savings Association Insurance Fund (SAIF), please click here.
With banks experiencing another highly profitable year and only three bank failures,
1998 was another positive year for the BIF, despite adverse trends in the global economic
picture. The BIF has grown steadily from a negative fund balance of $7 billion at year-end
1991 to $29.6 billion at year-end 1998. The 1998 fund balance represents a 4.7 percent
increase over the 1997 balance of $28.3 billion. BIF-insured deposits grew by 4.1 percent
in 1998, yielding a reserve ratio of 1.38 percent of insured deposits at year-end 1998,
unchanged from year-end 1997.
Deposit insurance assessment rates in 1998 were unchanged from 1997. For both
semiannual assessment periods in 1998, the Board voted to retain rates ranging from 0 to
27 cents annually per $100 of assessable deposits. Under these rates, 95.1 percent of
BIF-member institutions, or 8,808 institutions, were in the lowest-risk assessment rate
category and paid no deposit-insurance assessments for the second semiannual assessment
period of 1998. This rate schedule resulted in an average 1998 BIF rate of 0.08 cents per
$100 of assessable deposits.
As in 1997, interest earned on U.S. Treasury investments ($1.7 billion) exceeded
assessment revenue ($22 million) and was the primary source of revenue for the BIF in
1998. This was a result of minimal insurance losses and receivership activity, the
continued low assessment rate schedule and the concentration of institutions in the
Bank failures continued to be minimal in 1998. Only three BIF-member institutions, with
assets totaling $370 million, failed during the year. In 1997, one BIF-member institution
with assets of $25.9 million failed. Estimated insurance losses of the banks that failed
in 1998 were $179 million, compared to $4 million in estimated losses for the one failure
For the BIF in 1998, investments in U.S. Treasury obligations continued to be the main
component of total assets, at 94.4 percent, compared to 93.8 percent in 1997. The
financial position of the BIF continued to improve as cash and investments at year-end
were 92 times total liabilities, up from 85.6 times the total liabilities in 1997. In 1998,
the BIF had operating expenses of $697.6 million and net income of $1.3 billion, compared
to operating expenses of $605 million and net income of $1.4 billion in 1997.
The SAIF ended 1998 with a fund balance of $9.8 billion, a 5.0 percent increase over
the year-end 1997 balance of $9.4 billion. Estimated insured deposits increased by 2.8
percent in 1998. During the year, the reserve ratio of the SAIF grew from 1.36 percent of
insured deposits to 1.39 percent.
For both semiannual assessment periods of 1998, the Board retained the rate schedule in
effect for 1997, a range of 0 to 27 cents annually per $100 of assessable deposits. Under
this schedule, the percentage of SAIF-member institutions that paid no assessments
increased from 90.9 percent in the first semiannual assessment period to 91.9 percent in
the second half of the year, as more institutions qualified for the lowest-risk
assessment rate category. This rate schedule resulted in an average 1998 SAIF rate of
0.21 cents per $100 of assessable deposits.
The SAIF earned $15 million in assessment income in 1998, compared to $563 million in
interest income. In 1998, the SAIF had operating expenses of $85 million and net income of
$467 million, compared to operating expenses of $72 million and net income
of $480 million in 1997. For the second consecutive year, no SAIF-member institution
failed in 1998.
Under the Deposit Insurance Funds Act of 1996, the FDIC must set aside all SAIF funds
above the statutorily required Designated Reserve Ratio (DRR) of 1.25 percent of insured
deposits in a Special Reserve on January 1,1999. No assessment credits, refunds or other
payments can be made from the Special Reserve unless the SAIF reserve ratio falls below 50
percent of the DRR and is expected to remain below 50 percent for the following four
quarters. Effective January 1,1999, the Special Reserve was funded with $978 million,
reducing the SAIF unrestricted fund balance to $8.9 billion and the SAIF reserve ratio to
The SAIF Special Reserve was mandated by Congress in the Deposit Insurance Funds Act.
It was not proposed in order to address any deposit-insurance issues. However, by
eliminating any cushion above the DRR, the creation of the Special Reserve
on January 1, 1999, increases the likelihood of the SAIF dropping below the DRR. This, in
turn, increases the possibility that the FDIC would be required to raise SAIF assessment
rates sooner or higher than BIF assessment rates, resulting in an assessment rate
disparity between the SAIF and the BIF. In 1998, legislation that would have eliminated
the Special Reserve was introduced in the Congress but did not pass.
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 FDIC management on August 9, 1989, when FSLIC was abolished. On
January 1,1996, the FRF also assumed the RTCs residual assets and obligations.
Today, the FRF consists of two distinct pools of assets and liabilities. One pool,
composed of the assets and liabilities of the FSLIC, transferred to the FRF upon the
dissolution of the FSLIC on August 9,1989 (FRF-FSLIC). The other pool, composed of the
RTCs assets and liabilities, transferred to the FRF on January 1, 1996 (FRF-RTC).
The assets of one pool are not available to satisfy obligations of the other. The
FRF-FSLIC had resolution equity of $2.098 billion as of December 31, 1998, and the FRF-RTC
had resolution equity of $8.224 billion as of that date.