Savings Association Insurance Fund

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 1.25 percent.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. 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.