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The FDIC Board of Directors voted on October 8, 1996,
to issue a final rule imposing a special assessment of approximately
65.7 basis points on institutions that pay assessments to
the Savings Association Insurance Fund (SAIF), and to reduce
the adjusted attributable deposit amounts (AADAs) of certain
Oakar institutions. The Board also voted to issue for public
comment a proposed rule to lower the rates on assessments
paid to the SAIF, effective October 1, 1996. Comments on
the proposed rule are due by November 15, 1996. Complete
details of each Board action are set forth in the attached
Federal Register notices.
Special Assessment
The Deposit Insurance Funds Act of 1996 (Funds Act)
requires
the FDIC to impose a one-time special assessment on SAIF-assessable
deposits, including those held by SAIF members and BIF-member
Oakar institutions, to capitalize the SAIF at its target
Designated Reserve Ratio (DRR) of 1.25 percent of insured
deposits effective October 1, 1996. This assessment is required
to be applied against SAIF-assessable deposits held by institutions
as of March 31, 1995. The amount of the special assessment
is required to be based upon the August 31, 1996, SAIF balance
and insured deposit data reported in the March 31, 1996,
call reports.
In determining the amount of the special assessment, the
Board is required to take the following exemptions and adjustments
into account: (1) the Funds Act provides the Board with
the authority to exempt weak institutions from paying the
special assessment if the Board determines that such an
exemption would reduce risk to the SAIF; (2) the Funds Act
also grants exemptions to certain specifically defined institutions;
and (3) the Funds Act decreases by 20 percent the amount
of SAIF-assessable deposits against which the special assessment
will be applied for certain Oakar and other institutions.
The Funds Act requires the Board to issue guidelines
setting
forth the Board's criteria for determining whether institutions
are weak and, therefore, exempt from the special assessment.
The guidelines adopted by the Board classify as weak all
institutions that, on the basis of currently available data,
are undercapitalized (i.e., would be assigned to capital
group 3 in the FDIC's risk-related premium system), as well
as any institutions that would become undercapitalized if
they were required to pay the special assessment. If an
institution not classified as weak disagrees with this determination,
the guidelines delegate to the Director of the FDIC's Division
of Supervision (DOS) the responsibility for making a final
determination on the basis of additional information provided
by the institution. If an institution classified as weak
prefers to pay the special assessment, the guidelines also
delegate to the Director of DOS the responsibility for determining
whether the institution is capable of paying without posing
a significant risk of loss to the SAIF. Finally, if an institution
has received a composite CAMEL rating of 4 or 5 from its
primary supervisor, but does not meet the capital-based
test for exemption as a weak institution, the guidelines
indicate that the institution may request the Director of
DOS to classify the institution as weak, based on a determination
that paying the assessment would present a significant risk
of loss to the SAIF.
Beginning with the first semiannual period of 1997, the
Funds Act requires all exempt institutions to pay regular
semiannual SAIF assessments according to the rate schedule
in effect on June 30, 1995. This schedule is 23 to 31 basis
points at annual rates and does not include any rate charged
by the Financing Corporation (FICO). As explained below,
beginning on January 1, 1997, the FICO charge will be separate
from, and in addition to, deposit insurance assessment rates
for all insured institutions, regardless of their status
for purposes of the special assessment.
The FICO charge on SAIF-assessable deposits for the first
semiannual period of 1997, based on June 30, 1996, data,
is estimated to be approximately 6.4 basis points annually.
The actual rate may differ, depending upon changes in the
assessable deposit base. Exempt institutions will pay regular
semiannual assessments according to the 23 to 31 basis point
schedule through year-end 1999, unless they choose to pay
a pro-rated amount of the special assessment prior to that
time. By paying the prorated amount, equal to 16.7 percent
of the special assessment times the number of semiannual
periods remaining through year-end 1999, an institution
becomes subject to the same semiannual assessment rate schedule
that is applicable to non-exempt institutions. Additional
details pertaining to the special assessment are available
in the attached Federal Register notice.
As indicated by the attached timelines, institutions
subject
to the special assessment should have already received a
letter describing the procedures the FDIC will follow in
determining and collecting the special assessment. Institutions
have until November 1, 1996, to review the letter and advise
the FDIC of any corrections. The FDIC currently estimates
that the special assessment will be 65.7 basis points applied
against SAIF-assessable deposits held by institutions as
of March 31, 1995. This amount could change based upon adjustments
in the data used to compute the amount of the special assessment.
If such an adjustment is needed, the FDIC will announce
the amount on November 13, 1996, when final invoices will
be sent to all affected institutions. The FDIC will debit
each institution's designated account on November 27, 1996.
Lower SAIF Assessment Rates
With the SAIF now capitalized at the target DRR by the
special assessment, Section 7 of the FDI Act, as amended
by the Funds Act, requires the FDIC to set assessment rates
so as to maintain the target DRR. The Board is therefore
proposing to lower the rates on assessments paid to the
SAIF, while simultaneously widening the spread between the
lowest and highest rates to improve the effectiveness of
the FDIC's risk-based premium system. The Board is also
proposing to establish a process, similar to that which
currently exists for the BIF, for adjusting the SAIF rate
schedule within a limited range without notice and comment
to maintain the fund balance at the target DRR.
The Funds Act also separates, effective January 1, 1997,
the FICO assessment to service the interest on its bond
obligations from the SAIF assessment. However, between October
1, 1996, and January 1, 1997, any amount required by the
FICO must continue to be deducted from the amounts the FDIC
is authorized to assess SAIF-member savings associations,
and must not be assessed against Sasser and BIF-member Oakar
institutions. Until January 1, 1997, the effective rate
set by the Board for Sasser and BIF-member Oakar institutions
must, therefore, be lower than the effective rate for other
SAIF members if the Board is to comply with the immediate
requirement to maintain the SAIF reserve ratio at the target
DRR.
The proposed rule would establish a SAIF rate schedule
of 0 to 27 basis points effective for Sasser and BIF-member
Oakar institutions on October 1, 1996, and effective for
all institutions beginning January 1, 1997. The proposed
rule would establish a special interim rate schedule of
18 to 27 basis points annually between October 1, 1996,
and January 1, 1997, for SAIF-member savings associations.
The complete rate schedules proposed for the fourth quarter
of 1996 are shown in the attached Federal Register notice.
Excess assessments already collected under the current assessment
schedule in the fourth quarter would be refunded or credited
with interest for all institutions that paid assessments
to the SAIF.
Copies of the final rule to implement the special
assessment
and the proposed rule to lower SAIF assessment rates are
attached, along with assessment timelines.
For further information, please contact Fred Carns,
Assistant
Director, Division of Insurance (202) 898-3930; Stephen
Ledbetter, Chief, Assessments Evaluation Section, Division
of Insurance (202) 898-8658; Allan K. Long, Assistant Director,
Division of Finance (202) 416- 6991; James McFadyen, Senior
Financial Analyst, Division of Research and Statistics (202)
898-7027; Christine Blair, Financial Economist, Division
of Research and Statistics (202) 898-3936; Richard Osterman,
Senior Counsel, Legal Division (202) 898-3523; or, Jules
Bernard, Counsel, Legal Division (202) 898-3731.
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