FDIC LOWERS INSURANCE PREMIUMS FOR MOST BANKS, MAKES NO CHANGE IN RATES FOR SAVINGS ASSOCIATIONS
FOR IMMEDIATE RELEASE
The FDIC Board of Directors today voted to significantly reduce the
deposit insurance premiums paid by most banks but to keep existing assessment
rates intact for savings associations. The decision closely resembles a
proposal issued for public comment earlier this year. The reduction in
premium rates for banks is required by current law based on the anticipated
recapitalization of the Bank Insurance Fund (BIF).
FDIC Chairman Ricki Helfer said: "The banking industry in recent years
has regained its health and recapitalized its insurance fund with billions
of dollars in insurance premiums. Well-managed, well-capitalized banks are
to be commended for their achievements. As soon as recapitalization of the
Bank Insurance Fund is confirmed, these banks will enjoy greatly reduced
Chairman Helfer added that the new rate structure "is a reflection of the
strength of the industry, the strength of the Bank Insurance Fund, and the
commitment of the FDIC to reward well-run institutions and give weaker
institutions an incentive to improve."
Under the new rate structure, the best-rated institutions insured by the
Bank Insurance Fund will pay four cents per $100 of domestic deposits, down
from the current rate of 23 cents per $100. The weakest institutions will
continue to pay 31 cents per $100. Approximately 92 percent of the nearly
11,000 BIF-insured institutions would pay the lowest rate. The average
assessment rate is expected to be approximately 4.4 cents per $100, versus
the current 23.2 cents per $100. This translates to industry-wide savings
of about $4.4 billion per year.
Chairman Helfer said that widening the spread between the rates paid by
the strongest and the weakest BIF-insured institutions (eight basis points
under the current system, 27 basis points under the new one) promotes the
fundamental goals of a risk-related insurance system. "The wider range of
insurance rates gives weak banks a big incentive to get healthy and
encourages all banks to avoid unnecessary risk-taking," she said.
Current law requires the FDIC to charge BIF-member banks an average
assessment rate of 23 cents per $100 of domestic deposits until the fund is
recapitalized with reserves of $1.25 for every $100 of estimated insured
deposits (or a reserve ratio of 1.25 percent). The latest FDIC projections
indicate that the BIF likely was recapitalized during the second quarter of
Institutions insured by the Savings Association Insurance Fund (SAIF)
will continue paying premiums on a risk-related basis of 23 cents per $100 to
31 cents per $100. The average rate is expected to be 23.7 cents per $100.
SAIF-insured institutions will pay a higher rate than BIF-insured banks
because the SAIF remains seriously undercapitalized. At the end of the first
quarter of 1995, the SAIF had a balance of only 0.31 percent of insured
deposits and needed an additional $6.6 billion to be fully capitalized. At
the current pace and under reasonably optimistic assumptions, the SAIF is
unlikely to reach the minimum reserve ratio of 1.25 percent before the year
"Although the thrift industry is relatively healthy," Chairman Helfer
said, "its deposit insurance fund has major problems that must be addressed
before SAIF premium rates can be lowered. First, the SAIF is severely
undercapitalized. Second, starting this past July 1, the SAIF faces new
responsibilities and potential costs associated with resolving failed
thrifts. Third, nearly half of the SAIF's assessments continue to be
assigned to the federal cleanup of the savings and loan industry crisis.
"While today's action by the FDIC Board significantly lowering bank premiums
once the BIF is recapitalized is required by law, it nevertheless results in
a substantial premium differential between BIF and SAIF members. Deposit
migration from the SAIF to the BIF in response to the very real economic
incentive of such a differential is likely to lead to a further structural
weakening of the SAIF.
"The FDIC remains committed to working with Congress, the Administration
and other financial regulators in implementing a fair and comprehensive
solution to the problems facing savings associations and their insurance
fund. It is important, however, that ancillary issues presented by a merger
of the deposit insurance funds not be allowed to delay immediate resolution
of the financial difficulties of the SAIF."
The new BIF assessment rates will apply from the first day of the month
after the BIF is recapitalized. The soonest the recapitalization of the BIF
can be confirmed is in early September, when the agency finishes processing
banks' "Call Reports" (quarterly Reports of Condition and Income) for the
period ended June 30, 1995. Assuming that the BIF recapitalized during the
second quarter of 1995, BIF members that have overpaid their assessments
based on the newly-adopted premium rate schedule can expect to receive a
refund of any overpayment plus interest.
In connection with the new rate schedule, the FDIC Board established a
process for quickly raising or lowering all rates for BIF-insured
institutions if changing conditions warrant a timely change. Under this new
system, the Board would have the flexibility to adjust the entire BIF
assessment rate schedule twice a year without having to seek public comment
first, but only within a range of no more than five cents per $100 above or
below the premium schedule adopted.