Legal and Regulatory:
Economic Growth And Regulatory Paperwork Reduction Act of 1996
Subtitle G -- Deposit Insurance Funds (The "Deposit Insurance Funds Act of 1996")

This section would require the FDIC to impose a special assessment on each insured depository institution that has assessable deposits under the Savings Association Insurance Fund (SAIF) so that SAIF may achieve its designated reserve ratio (DRR) on the first business day of the first month after the date of the enactment of the Deposit Insurance Funds Act of 1996 (Deposit Insurance Funds Act). Because the legislation was enacted as of September 30, 1996, under the Deposit Insurance Funds Act, SAIF achieved its DRR and became fully capitalized on October 1, 1996. For purposes of the SAIF special assessment, the amount of SAIF-assessable deposits is determined as of March 31, 1995. However, the term "SAIF-assessable deposits" includes deposits assumed after March 31, 1995 if the deposits were assumed from an institution that is no longer insured when the special assessment to recapitalize SAIF is imposed under this section. Therefore, some institutions will be required to pay the special assessment on SAIF-insured deposits that were assumed after March 31, 1995.

A major part of the plan to recapitalize SAIF involves imposing a one-time special assessment on SAIF-assessable deposits (with some exceptions)[NOTE: The FDIC has discretion to issue orders exempting weak institutions from paying this special assessment if the exemption will reduce the risk to SAIF. The FDIC must prescribe guidelines for issuing such an exemption within 30 days of enactment of this legislation. The FDIC is required to exempt from the special assessment (i) institutions that existed on October 1, 1995 and held no SAIF-assessable deposits before January 1, 1993, (ii) Federal savings banks newly established in April 1994 to acquire the deposits of savings institutions in default that received assistance from the RTC in connection with the transactions, and (iii) a SAIF-insured savings association that, before January 1, 1987, was a Federal savings bank insured by FSLIC for the purpose of acquiring the assets or assuming the liabilities of a national bank in a transaction consummated after July 1, 1986 and had assets less than $150 million. Exempt institutions generally are required to pay semiannual assessments at former rates under the schedule applicable to SAIF fund members on June 30, 1995, with certain exceptions.] that may be paid in two installments under certain conditions. Subject to certain statutory adjustments, the FDIC has the discretion to determine the rates of the assessments after considering certain factors, including the most recent SAIF balance, data on insured deposits, and any other factors that the FDIC deems appropriate.

There are three statutory adjustments that the FDIC must consider in setting the SAIF recapitalization rates. First, if a Bank Insurance Fund (BIF) member, including a national bank, acquired SAIF-assessable deposits in Oakar transactions [NOTE:"Oakar transactions" include bank purchases of SAIF-assessable deposits in any one of the three following ways: (1) the merger or consolidation of a BIF member with a SAIF member; (2) the assumption of any liability by a BIF member to pay any deposits of a SAIF member; and (3) the transfer of assets of a SAIF member in consideration of the assumption of liabilities for any portion of the deposits of the SAIF member. Under section 5(d)(3) of the FDI Act (12 U.S.C. 1815(d)(3)), as amended by section 2201 of the Regulatory Paperwork Reduction Act, these transactions can occur only if approved by the responsible banking agency under the Bank Merger Act and if the requirements of section 5(d)(3) are satisfied.] prior to March 31, 1995 (or after March 31, 1995 if the institution from which the deposits were acquired is no longer insured at the time the special assessment is imposed), it would be subject to the SAIF special assessment but the amount of assessable deposits would be reduced by 20 percent [NOTE:To be eligible for the 20% haircut, a BIF member must satisfy certain requirements that are based on its adjusted attributable deposit amount as of June 30, 1995.] for purposes of the assessment if certain conditions are satisfied. The 20% haircut for these BIF members applies for purposes of the special assessment and for purposes of future semiannual assessments on SAIF-assessable deposits that were acquired prior to March 31, 1995.

Second, for purposes of computing the special assessment, "converted associations,"[NOTE: A "converted association" is (i) a Federal savings association that is a SAIF member, has SAIF-assessable deposits of less than $4 billion as of March 31, 1995, and is the resulting institution of a merger, acquisition, or other transaction in which a State savings association (which was insured before August 9, 1989) converted to a Federal savings association, (ii) a State depository institution that is a SAIF member, had been a State savings bank prior to October 15, 1982, and was a Federal savings association on August 9, 1989, (iii) an insured bank that was established as a new institution to acquire the deposits of a savings association in default, did not open for business until it acquired the savings association's deposits, and was a SAIF member before the date of enactment of this Act, and (iv) an insured bank that resulted from a savings association before December 19, 1991 and had an increase in its capital in conjunction with the conversion that is equal to more than 75%.] including certain Sasser banks [NOTE: "Sasser" banks refer to the conversion of a savings association to a bank charter prior to SAIF reaching its DRR and, as a result, the resulting bank was required to remain a SAIF member.] that qualify under very limited criteria, may also reduce by 20% the amount of deposits that are SAIF-insured as of March 31, 1995 (or after March 31, 1995 if subject to the special assessment because the institution from which the deposits were acquired is no longer insured at the time the special assessment is imposed). Third, if payment of the special assessment would pose a significant risk that an insured depository institution or its holding company may default on payments under debt obligations or preferred stock, the institution may elect to pay the special assessment under extended terms that would include a supplemental special assessment.

Sec. 2703. Financing Corporation Funding.

Beginning with the semiannual periods after December 31, 1996, assessments to pay the approximately $800 million in interest on the obligations issued by the Financing Corporation (FICO) will be shared among all insured depository institutions, including insured national banks, instead of only SAIF members. For purposes of the assessments to pay the interest on the FICO bonds, BIF-assessable deposits will be assessed at a rate of 20% of the assessment rate applicable to SAIF-assessable deposits until December 31, 1999. After the earlier of December 31, 1999 or the date that the last savings association ceases to exist, full pro-rata sharing of FICO assessments will begin.

For purposes of paying the interest on the FICO bonds, "BIF-assessable deposits" means deposits that are subject to assessment under BIF. The term "SAIF-assessable deposits" means deposits that are assessable under SAIF and includes any deposits that were assumed after March 31, 1995 if the insured institution from which the deposits were acquired is not insured when the SAIF special assessment is imposed.

The legislation also provides that, as of the date of enactment and ending on the earlier of December 31, 1999 or the date that the last savings association ceases to exist, the Federal banking agencies must take appropriate action to prohibit deposit shifting from SAIF to BIF, including enforcement actions, denial of applications, or imposing exit and entrance fees as if the transaction qualified as a conversion. The legislation requires the OCC, the FDIC, the Fed, and OTS to take necessary actions to prevent insured depository institutions and depository institution holding companies from facilitating or encouraging the shifting of deposits from SAIF-assessable to BIF-assessable for the purpose of evading the assessments imposed on SAIF-assessable deposits. The FDIC may issue regulations to prevent deposit shifting. It is a rule of construction, however, that this provision does not prohibit an institution from engaging in conduct or activity that is part of the ordinary course of business and is not directed at depositors of an insured affiliated institution.

Sec. 2704. Merger of BIF and SAIF.

The Act provides for the merger of BIF and SAIF into the Deposit Insurance Fund (DIF) on January 1, 1999, if no insured depository institution is a savings association [NOTE: The legislation defines the term "savings association" as having the same meaning as it does in section 3(b) of the FDI Act (12 U.S.C. 1813(b)). Under that definition, "savings association" includes both Federal and State savings associations. ] on that date. If an insured savings association still exists on January 1, 1999, the legislation does not make any provision for the merger of the funds to occur on a subsequent date.

If immediately before the merger, the SAIF reserve ratio exceeds the DRR, the excess will be placed in DIF's Special Reserve. While the DIF Special Reserve will not be included for purposes of calculating the DIF DRR and the FDIC cannot refund any amount in the Special Reserve, it can be drawn upon for emergency purposes if the reserve ratio of the DIF should drop below 50% of its DRR for a sustained period of time. This section also makes conforming changes to the FDI Act and other provisions of law effective on January 1, 1999 if the funds are merged.

Sec. 2705. Creation of SAIF Special Reserve.

This section establishes a SAIF Special Reserve as of January 1, 1999 if the funds are not merged that will consist of the excess in the SAIF over the DRR as of that date. While the amount in the SAIF Special Reserve cannot be used to calculate any future DRR and cannot be used for refunds from the SAIF, it would be available for emergency purposes if the reserve ratio of the SAIF is less than 50% of its DRR for a sustained period of time.

Sec. 2706. Refund of Amounts in Deposit Insurance Fund in Excess of Designated Reserve Amount.

The bill requires the FDIC on such basis as it deems appropriate to refund any amounts in excess of the DRR to BIF members and, after it is established, to DIF members. There are no provisions for refunds to SAIF members. A member cannot, however, receive any refund for any semiannual assessment period that exceeds the assessment paid during that period. Institutions that are not well capitalized or that have other weaknesses are not eligible for refunds. This provision becomes effective as of the end of any semiannual assessment period beginning after the date of enactment of the Deposit Insurance Funds Act.

Sec. 2707. Assessment Rates for SAIF Members May Not Be Less than Assessment Rates for BIF Members.

Between the date of enactment of the Deposit Insurance Funds Act on September 30, 1996 and December 31, 1998, notwithstanding any other provision in section 7(b) of the FDI Act (12 U.S.C. 1817(b)), the assessment rate for a SAIF member may not be less than the assessment rate for a BIF member that poses a comparable risk to the deposit insurance fund. Consequently, if BIF premiums should rise during this time period so will SAIF premiums notwithstanding that SAIF is recapitalized and no increase in SAIF premiums may be necessary.

Sec. 2708. Assessments Authorized Only If Needed to Maintain the Reserve Ratio of a Deposit Insurance Fund.

Section 2708 amends section 7(b) of the FDI Act (12 U.S.C. 1817(b)) to provide that, except for institutions that are not well capitalized or that have other weaknesses, the FDIC may not set semiannual assessments for a deposit insurance fund in excess of the amount needed to maintain or bring the fund up to the DRR. However, the requirement in section 2707 that prohibits SAIF premiums from dropping below BIF premiums for comparable institutions would apply until December 31, 1998 notwithstanding the changes made to section 7(b) by this section.

Sec. 2709. Treasury Study of Common Depository Institution Charter.

The legislation requires the Department of the Treasury to conduct a study of all issues the Secretary finds relevant to the development of a common charter for all insured depository institutions. The Treasury Department must submit a report to Congress along with any legislative recommendations no later than March 31, 1997.

Sec. 2710. Definitions.

This section defines the terms used in the title. Generally, the terms are the same as those defined under the FDI Act. However, the term "SAIF-assessable deposits" includes deposits assumed after March 31, 1995 that were deposits of an institution that is not insured when the SAIF special assessment is imposed.

Sec. 2711. Deduction for Special Assessment.

This section provides that the SAIF special assessment is tax deductible.

This is the last section of the Summary.

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