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Federal Deposit
Insurance Corporation

Each depositor insured to at least $250,000 per insured bank

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DATES: The proposed rule is withdrawn July 29, 1997.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

Last Updated 04/25/1997

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