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FIL-76-97 Attachment

[Federal Register: July 29, 1997 (Volume 62, Number 145)]

[Proposed Rules]

[Page 40487-40488]

From the Federal Register Online via GPO Access []








12 CFR Part 312


RIN 3064-AC01


Prevention of Deposit Shifting


AGENCY: Federal Deposit Insurance Corporation (FDIC).


ACTION: Proposed rule; withdrawal.




SUMMARY: The FDIC is withdrawing a proposed rule to implement a statute

prohibiting the shifting of deposits insured under the Savings

Association Insurance Fund (SAIF) to deposits insured under the Bank

Insurance Fund (BIF) for the purpose of evading the assessment rates

applicable to SAIF deposits. The FDIC is taking this action in response

to comments received on the proposed rule, which was published in the

Federal Register on February 11, 1997.


DATES: The proposed rule is withdrawn July 29, 1997.


FOR FURTHER INFORMATION CONTACT: Joseph A. DiNuzzo, Counsel, (202) 898-

7349, Legal Division; or George Hanc, Associate Director, Division of

Research and Statistics, (202) 898-8719, Federal Deposit Insurance

Corporation, Washington, D. C. 20429.




I. The Funds Act and the Deposit Shifting Statute


A provision of the Deposit Insurance Funds Act of 1996 (Funds Act)

requires the Comptroller of the Currency, the Board of Directors of the

FDIC, the Board of Governors of the Federal Reserve System, and the

Director of the Office of Thrift Supervision (federal banking agencies)

to take ``appropriate actions'' to prevent insured depository

institutions and holding companies


[[Page 40488]]


from ``facilitating or encouraging'' the shifting of deposits from

SAIF-assessable deposits to BIF-assessable deposits for the purpose of

evading the assessments applicable to SAIF-assessable

deposits.1 Pub. L. 104-208, 110 Stat. 3009-485, section

2703(d). This statutory prohibition on deposit shifting (the deposit

shifting statute) expressly authorizes the FDIC to issue regulations,

including regulations defining terms used in the statute, to prevent

the shifting of deposits. The deposit shifting statute terminates on

the earlier of December 31, 1999, or the date on which the last

federally chartered savings association ceases to exist.



1 Although currently the range of risk-based

assessments for BIF-assessable and SAIF-assessable deposits is the

same, a higher assessment payable to the Financing Corporation must

be paid on SAIF-assessable deposits. Thus, the overall assessment is

higher for SAIF-assessable deposits than for BIF-assessable




The Funds Act was enacted as part of the Economic Growth and

Regulatory Paperwork Reduction Act of 1996, Pub. L. 104-208, 110 Stat.

3009-479 through 3009-498, sections 2701--2711, and became effective

September 30, 1996. The Funds Act provided for the capitalization of

the SAIF through a special assessment on all depository institutions

that hold SAIF-assessable deposits.2



\2\ Pursuant to this requirement, the FDIC issued a final rule

imposing a special assessment on institutions holding SAIF-

assessable deposits in an amount sufficient to increase the SAIF

reserve ratio to the designated reserve ratio of 1.25 percent as of

October 1, 1996. 61 FR 53834 (Oct. 16, 1996), to be codified at 12

CFR 327.41.



II. The Proposed Rule


In February 1997 the FDIC issued a proposed rule to implement the

deposit shifting statute. 62 FR 6139 (Feb. 11, 1997). The proposed rule

consisted of two basic provisions. The first reiterated the requirement

in the statute that the respective federal banking agency deny

applications and object to notices filed by depository institutions or

depository institution holding companies if the purpose of the

underlying transaction was to evade assessments payable on SAIF-

assessable deposits. The second provision of the proposed rule would

have established a presumption under which entrance and exit fees would

be imposed upon depository institutions for deposits that are shifted

from SAIF-assessable deposits to BIF-assessable deposits in violation

of the deposit shifting statute.


III. Comments on the Proposed Rule


The comment period for the proposed rule closed on April 14, 1997.

The FDIC received fifteen comments on the proposal. Nine of the

comments were from industry trade groups, four from community banks,

one from a bank holding company and one from a savings and loan holding

company. Nine of the comments opposed the proposed rule. They argued,

in essence, that a regulation is unnecessary given that SAIF is now

capitalized and the assessment rate differential between BIF and SAIF

institutions is not significant. Some who opposed the proposed rule

contended that it is unworkably vague, particularly because it does not

define key terms, such as ``deposit shifting'' and ``ordinary course of


Of the national industry trade groups, one said that a regulation

is not necessary and, instead, the agencies should just continue to

monitor deposit shifting. Another commented that a regulation would not

be necessary, but that the FDIC should consider issuing a policy

statement to provide guidance to the industry. A third national trade

group said the regulation would be an appropriate measure to enforce

the deposit shifting statue. One state industry trade association

voiced support for the proposed rule. Five others commented that a

regulation was unnecessary.

The four community banks all commented that the regulation would be

an appropriate means to enforce the statute. The bank holding company

that commented detailed five areas of concern with the proposed rule,

essentially citing a ``vagueness'' problem. The comment filed by the

savings and loan holding company alleged, among other things, that the

rule would be illegal under the U.S. Constitution and the

Administrative Procedure Act.


IV. Withdrawal of the Proposed Rule


Based on a review of the comments and the FDIC's internal review of

the applicable issues, the Board of Directors of the FDIC has decided

to withdraw the proposed rule. The Board agrees with the majority of

those who commented that the deposit shifting statute can and should be

enforced on a case-by case basis and, thus, a regulation to implement

and enforce the statute is unnecessary.

This decision is based on several factors: (1) The diminished

differential between the assessments paid on BIF-assessable deposits

and SAIF-assessable deposits; (2) the lack of evidence of any

significant, widespread deposit shifting among depository institutions;

(3) the regulatory burden that might result from the issuance of a

final rule on deposit shifting; and (4) the ability of the FDIC and the

other federal banking agencies to enforce the deposit shifting statute

on a case-by-case basis through the monitoring of any such activity by

reviewing quarterly financial reports and by conducting on-site

examinations, if necessary.

The Board has decided, therefore, in coordination with the other

federal banking agencies, that the deposit shifting statute should be

enforced on a case-by-case basis. The FDIC, however, will monitor the

effectiveness of this approach and, if necessary, reconsider in the

future whether a regulation is needed to implement the deposit shifting



By the order of the Board of Directors.


Dated at Washington, D.C., this 22nd day of July, 1997.


Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 97-19943 Filed 7-28-97; 8:45 am]