[Congressional Record Volume 141, Number 65 (Friday, April 7, 1995)]
[Extensions of Remarks]
[Pages E855-E857]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                     LEGISLATION ON BIF-SAIF ISSUES

                                 ______


                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                         Friday, April 7, 1995
  Mr. LaFALCE. Mr. Speaker, today I am introducing several bills 
designed to address the serious problems posed for the Savings 
Association Insurance Fund [SAIF] by the current onerous obligations 
placed on the thrift industry and the pending disparity between the 
premiums paid by SAIF- and BIF-insured institutions.
  The FDIC, other relevant regulators, the Treasury, and the GAO, in a 
report commissioned by myself and Senator D'Amato, have now apprised 
the Congress quite clearly of the nature, extent, and urgency of the 
problem. It is my hope that these bills will now move the discussion 
along and allow us to focus more concretely on the specific 
requirements of a meaningful solution. There is a multiplicity of 
options. In my view, the right one is the one which can garner 
substantial bipartisan support in the near term. Taking no action is 
not a responsible course if we are to protect the integrity of the 
deposit insurance system.
  There are three key problems: First, the SAIF is seriously 
undercapitalized just at the point it will newly have to assume 
responsibility for future thrift failures; second, the premium flow 
from existing thrifts will be insufficient to continue to pay the 
interest on the FICO bonds issued to cover the losses of the 1980's 
over the long term; and third, within the next few months, there will 
be a substantial premium disparity between BIF- and SAIF-insured 
institutions which could have a significant adverse impact on the now-
healthy thrift industry.
  The thrift industry is generally profitable, well-capitalized, and 
well-managed. But it is impossible for the thrifts alone to adequately 
capitalize their insurance fund and continue to pay interest on the 
FICO bonds issued to cover the losses of the 1980's without adverse 
effects on the industry and possibly depositors and taxpayers.
  These problems are not the fault of current industry members who did 
not cause, and have worked hard to survive and help pay for, the 
industry problems of the 1980's. There are structural flaws in the 
mechanisms devised to deal with past problems. As a result, of the more 
that $9 billion in assessment revenues from the thrifts paid between 
1989 and 1994, only $7 billion went into the SAIF. The balance was 
diverted to other uses, primarily to payment of the interest on the 
bonds.
  Congress intended that the thrifts, through the bonding program and 
otherwise, pay as much of the cost of past industry losses as possible, 
in an effort to reduce taxpayer costs. That was appropriate. But the 
amount of the burden placed on the industry was based on certain 
assumptions which I argued at the time were overly optimistic and which 
have proved false. Most notably, deposit growth in the thrift industry 
was estimated at 6-7 percent. Instead, it has declined by 5 percent per 
year in recent years, reducing far below expectations the premium 
income which is relied on to pay SAIF and FICO.
  There are three possible sources of funds which have been broached by 
the regulators to solve this problem: the thrifts; the BIF-insured 
institutions, either through a merger of the insurance funds or 
otherwise; and some portions of the moneys already authorized and 
appropriated to the RTC to cover past thrift losses, but which have not 
been expended. Some of my bills may be criticized as hitting the thrift 
industry too hard; some may be criticized as hitting the banks too 
hard. My concern is finding the proper balance to protect the 
depositor. The best solution may ultimately be one that distributes the 
pain to the maximum degree possible.
  [[Page E856]] I have always tried to minimize the adverse impact on 
the taxpayer. In fact, I opposed the FIRREA legislation because I 
thought it unduly increased the burden on the taxpayer and on future 
generations. But I believe we should not be too timid to discuss using 
the unexpended RTC funds for the purpose for which they were intended 
and related purposes, rather than have those funds revert to the 
Treasury.
  Congress, in fact, anticipated that the mechanism devised in FIRREA 
might be inadequate to capitalize the SAIF and cover the FICO bonds, 
and included provisions in FIRREA allowing the additional appropriation 
of Treasury funds to the SAIF as a supplement. Unfortunately those 
anticipated appropriations were never made, and the excess RTC funds 
are not now available to solve the SAIF or FICO problems without 
further congressional action. Had the original intent of the law been 
fulfilled, the SAIF would have been capitalized. We should at least 
consider recognizing that original intent and making a modest amount of 
these excess RTC funds available as part of a solution.
                      BIF-SAIF Resolution Options


option 1: financing corporation and savings association insurance fund 
                           reform act of 1995

       Summary: Uses investment income from unexpected RTC funds 
     for FICO debt obligation; SAIF-insured institutions 
     recapitalize SAIF with possible special assessment and 
     premium disparity.
       Authorizes use of investment income from unexpended RTC 
     funds to pay FICO debt obligation.
       Authorizes use of remaining unexpended RTC funds to be held 
     in reserve by FDIC to cover potential insurance fund losses 
     at SAIF-insured institutions until the SAIF fund achieves 
     designated reserve ratio of 1.25 percent of insured deposits. 
     Any unused RTC funds revert to U.S. Treasury upon 
     recapitalization of fund.
       Provides FDIC with discretionary authority to require SAIF-
     insured institutions to pay a special, one-time assessment of 
     up to 40 basis points toward recapitalization of the SAIF 
     fund. The assessment could be collected over a number of 
     years, with a larger portion of the assessment due in the 
     first year to address the immediate problem of inadequate 
     fund capitalization. The FDIC is authorized to provide 
     exemptions from this assessment, or reduce such assessment, 
     for troubled institutions or institutions which would become 
     troubled if such an assessment were imposed.
       Eliminates the mandatory 18 basis point minimum annual 
     assessment rate for SAIF-insured institutions in current law 
     to permit FDIC to set annual SAIF premiums at levels that 
     balance the rate of recapitalization of SAIF with concern for 
     competitive position of SAIF-insured institutions.
       Directs FDIC to limit annual BIF-SAIF premium disparity to 
     not more than 9 basis points during period of 
     recapitalization of SAIF.
       Clarifies that FICO debt repayments are insurance outlays 
     for purposes of budgetary scoring.


option 2: Financing Corporation and Savings Association Insurance Fund 
                           Amendments of 1995

       Summary: Uses unexpended RTC funds to recapitalize SAIF; 
     FICO debt obligation funded with interest from invested RTC 
     funds, SAIF premiums and Oakar/Sasser premiums.
       Authorizes use of unexpended RTC funds to recapitalize the 
     SAIF.
       Authorizes the use of investment income from remaining RTC 
     funds to pay portion of the annual FICO bond interest.
       Includes portion of premiums paid by Oakar and Sasser 
     institutions toward payment of the annual FICO debt 
     obligation.
       Eliminates the mandatory 18 basis point minimum annual 
     assessment rate for SAIF-insured institutions in current law 
     to permit FDIC to set annual SAIF premiums at level necessary 
     to supplement RTC investment income to meet annual FICO debt 
     obligation and to meet estimated SAIF fund expenses.
       Directs FDIC to limit annual BIF-SAIF premium disparity to 
     not more than 9 basis points during period of 
     recapitalization of SAIF.


     option 3: financing corporation and savings association fund 
                        restoration act of 1995

       Summary: Uses unexpended RTC funds to supplement premium 
     income to recapitalize SAIF consistent with FIRREA; FICO debt 
     obligation funded with interest from invested RTC funds, SAIF 
     premiums and Oakar/Sasser premiums.
       Authorizes the use of unexpected RTC funds to help 
     recapitalize the SAIF fund and to cover losses consistent 
     with the original intent of the 1989 FIRREA legislation.
       Authorizes investment of remaining RTC funds with annual 
     interest income used to pay portion of annual FICO bond 
     interest.
       Includes portion of premiums paid Oakar and Sasser 
     institutions toward payment of FICO debt obligation.
       Eliminates the mandatory 18 basis point minimum annual 
     assessment rate for SAIF-insured institutions in current law 
     to permit FDIC to set SAIF premium at level that would 
     balance use of RTC funds and concern for competitive position 
     of SAIF-insured institutions.
  option 4: funding for supervisory goodwill adjudications act of 1995

       Summary: Uses unexpended RTC funds to establish a special 
     reserve fund to satisfy claims arising from supervisory 
     goodwill cases.
       Authorizes unexpended RTC funds to continue to be made 
     available and set aside in a special reserve fund.
       Authorizes the use of principal and interest income 
     available to the special fund to be used to satisfy judgments 
     against the federal government in cases brought by thrift 
     institutions in response to changes made in FIRREA in the 
     treatment of supervisory goodwill for the realization of 
     losses from acquisitions of failed thrift institutions.


  option 5: deposit insurance funds management improvement act of 1995

       Summary: Provides the FDIC with greater flexibility in 
     managing the BIF and SAIF insurance funds and in setting 
     annual BIF and SAIF premiums.
       Clarifies that the designated reserve ratio of 1.25 percent 
     of insured deposits for the BIF and SAIF insurance funds is a 
     minimum reserve ratio rather than a target to be maintained.
       Authorizes the FDIC to maintain the BIF and SAIF funds at 
     reserve levels that provide an appropriate cushion against 
     anticipated losses without allowing excessive reserves to 
     build up in either fund.
       Authorizes the FDIC to make appropriate reductions in 
     annual BIF and SAIF premium assessments when reserve funds or 
     exceed the minimum designated reserve ration of 1.25 percent 
     of insured deposits.
       Eliminates the mandatory 18 basis point minimum annual 
     premium assessment in current law for SAIF-insured 
     institutions.
       Authorizes the FDIC to consider the impact of any potential 
     disparity in annual premiums paid by BIF- and SAIF-insured 
     institutions, where appropriate, to protect the safety and 
     soundness of either insurance fund and its members and the 
     deposit insurance system as a whole.


          option 6: deposit insurance fund merger act of 1995

       Summary: Merges the BIF and SAIF funds; Scheduled reduction 
     in BIF premiums; SAIF-insured institutions continue to fund 
     FICO debt with inclusion of Oakar/Sasser institutions.
       Authorizes the merger of the BIF and SAIF funds into a 
     single insurance fund.
       Directs the FDIC to make the scheduled 1995 reduction in 
     annual premiums paid by former BIF-insured institutions to a 
     level that reflects estimates of expenses for the current BIF 
     fund plus any additional assessment required to capitalize 
     the merged BIF-SAIF fund, except that the average assessment 
     shall under no circumstances exceed 6 basis points.
       Provides FDIC with discretionary authority to require SAIF-
     insured institutions to pay a special, one-time assessment of 
     up to 40 basis points toward recapitalization of the merged 
     BIF-SAIF fund. The assessment could be collected over a 
     number of years, with a lager portion of the assessment due 
     in the first year to address the immediate problem of 
     inadequate fund capitalization. The FDIC is authorized to 
     provide exemptions from this assessment, or reduce such 
     assessment, for troubled institutions or institutions which 
     would become troubled if such an assessment were imposed.
       Requires current SAIF-insured institutions to continue to 
     pay the FICO bond debt obligation.
       Includes premiums paid by Oakar and Sasser institutions 
     toward payment of FICO debt obligation.
       Eliminates the mandatory 18 basis point minimum annual 
     assessment rate for SAIF-insured institutions to permit FDIC 
     to set separate annual premiums for SAIF-insured institutions 
     that reflect estimates of expenses to the current SAIF fund, 
     plus amounts necessary to pay a pro rata share of the 
     additional fund capitalization and the annual FICO bond debt 
     obligation.
  option 7: bank insurance fund and the savings association insurance 
                        fund merger act of 1995

       Summary: Merges the BIF and SAIF funds; Scheduled reduction 
     in BIF premium; Excess RTC funds loaned to FDIC to fully 
     capitalize merged BIF-SAIF fund; SAIF-insured institutions 
     repay loan of RTC funds with special annual assessment; All 
     institutions funded FICO debt obligation on pro rata basis.
       Authorizes the merger of the BIF and SAIF insurance funds 
     into single insurance fund with the combined fund fully 
     capitalized no later than 2000.
       Requires both BIF-insured and SAIF-insured institutions to 
     pay the annual FICO bond debt obligation on pro rata basis.
       Directs the FDIC to make the scheduled 1995 reduction in 
     annual premiums paid by former BIF-insured institutions to 
     level reflecting original estimates of expenses to the BIF 
     fund, plus amount necessary to pay a pro rata share of the 
     annual FICO debt obligation, except that the average 
     assessment shall under no circumstances exceed 6 basis 
     points.
       Authorizes unexpended RTC funds to be made available to 
     FDIC as a loan to capitalize the merged BIF-SAIF fund at the 
     designated reserve ratio of 1.25 percent of insured deposits.
       Authorizes the FDIC to set a separate annual assessment for 
     institutions insured by the SAIF as of December 31, 1994 (and 
     any 
     [[Page E857]] successor institution) for the purpose of 
     repaying the loan of RTC funds used to capitalize the merged 
     BIF-SAIF fund.+ The annual amount of the special assessment 
     and the repayment term would be determined by the FDIC in 
     consultation with the Treasury.
       The disparity between the annual premium assessments paid 
     by former SAIF-insured institutions, including the annual 
     assessment to repay the loan of RTC funds, and the annual 
     premium assessments paid by other insured institutions would 
     be capped at 9 basis points.
       Eliminates the mandatory 18 basis point minimum annual 
     assessment rate for SAIF-insured institutions.


          option 8: deposit insurance fund merger act of 1995

       Summary: Merges the BIF and SAIF funds with 
     recapitalization of combined fund within five years; 
     Scheduled reduction in BIF premium; SAIF-insured institutions 
     contribute to combined fund shortfall with special assessment 
     and capped premium differential; All institutions fund FICO 
     debt obligation on pro rata basis.
       Authorizes the merger of the BIF and SAIF deposit insurance 
     funds into a single insurance fund with recapitalization of 
     combined fund at designated reserve ratio of 1.25 percent of 
     insured deposits within 5 years.
       Requires both BIF-insured and SAIF-insured institutions to 
     pay annual FICO bond debt obligation on pro rata basis.
       Directs the FDIC to make the scheduled reduction in annual 
     premiums paid by BIF-insured institutions to a level that 
     reflects estimates of expenses to the current BIF fund, plus 
     amounts necessary to pay the pro rata share of annual FICO 
     debt obligation.
       Provides FDIC with discretionary authority to require SAIF-
     insured institutions to pay a special, one-time assessment of 
     up to 40 basis points toward recapitalization of the merged 
     BIF-SAIF fund. The assessment could be collected over a 
     number of years, with a larger portion of the assessment due 
     in the first year to address the immediate problem of 
     inadequate fund capitalization. The FDIC is authorized to 
     provide exemptions from this assessment, or reduce such 
     assessment, for troubled institutions or institutions which 
     would become troubled if such an assessment were imposed.
       Provides the FDIC with discretion to set annual premiums 
     paid by SAIF-insured institutions separately from premiums 
     paid by BIF-insured institutions until combined BIF-SAIF fund 
     is recapitalized at the designated reserve ratio.
       Eliminates the mandatory 18 basis point minimum annual 
     assessment rate for SAIF-insured institutions.


 option 9: savings association insurance fund recapitalization act of 
                                  1995

       Summary: Uses unexpended RTC funds to help recapitalize 
     SAIF; No. BIF-SAIF Merger; BIF and SAIF institutions fund 
     FICO debt obligation on a pro rata basis.
       Authorizes the use of unexpended RTC funds to help 
     recapitalize the SAIF fund and to cover losses consistent 
     with the original intent of the 1989 FIRREA legislation.
       Requires both BIF-insured and SAIF-insured institutions to 
     pay the annual FICO bond debt obligation on pro rata basis.
       Eliminates the mandatory 18 basis point minimum annual 
     assessment rate for SAIF-insured institutions in current law 
     to permit FDIC to set SAIF premium at level that would 
     balance use of RTC funds and concern for competitive position 
     of SAIF-insured institutions.
option 10: savings association insurance fund and financing corporation 
                           reform act of 1995

       Summary: BIF and SAIF-insured institutions fund FICO debt 
     obligation on pro rata basis; No merger of BIF-SAIF funds; 
     SAIF-insured institutions capitalize SAIF with special 
     assessment and premium disparity.
       Requires both BIF-insured and SAIF-insured institutions to 
     pay the annual FICO bond debt obligation on a pro rata basis.
       Provides the FDIC with discretionary authority to require 
     SAIF-insured institutions to pay a special, one-time 
     assessment of up to 40 basis points toward recapitalization 
     of the SAIF fund. The assessment could be collected over a 
     number of years, with a larger portion of the assessment due 
     in the first year to address the immediate problem of 
     inadequate fund capitalization. The FDIC is authorized to 
     provide exemptions from this assessment, or reduce such 
     assessment, for troubled institutions or institutions which 
     would become troubled if such an assessment were imposed.
       Eliminates the mandatory 18 basis point minimum annual 
     assessment rate for SAIF-insured institutions in current law.


option 11: savings association insurance fund stabilization act of 1995

       Summary: BIF and SAIF-insured institutions fund FICO debt 
     obligation on pro rata basis; SAIF-insured institutions 
     capitalize SAIF with special assessment and premium disparity 
     through 1999; RTC funds used as backup loss reserve for SAIF.
       Requires both BIF-insured and SAIF-insured institutions to 
     pay annual FICO bond debt obligation on a pro rata basis.
       Provides the FDIC with discretionary authority to require 
     SAIF-insured institutions to pay a special, one-time 
     assessment of up to 40 basis points toward recapitalization 
     of the SAIF fund. The assessment could be collected over a 
     number of years, with a larger percentage payment due the 
     first year to address the immediate problem of inadequate 
     fund capitalization. The FDIC is authorized to grant 
     exemptions from this assessment, or reduce such assessment, 
     for troubled institutions or institutions which would become 
     troubled if such an assessment were imposed.
       Authorizes the use of unexpended RTC funds to be held in 
     reserve by the FDIC to cover potential insurance fund losses 
     for SAIF-insured institutions until SAIF achieves the 
     designated reserve ratio. Unused funds revert to U.S. 
     Treasury upon recapitalization of the fund.
       Eliminates the mandatory 18 basis point minimum annual 
     assessment rate for SAIF-insured institutions in current law.


option 12: Federal Deposit Insurance Corporation Regulatory Flexibility 
                              Act of 1995

       Summary: Regulatory changes to provide the FDIC with 
     flexible authority to address problems of SAIF 
     recapitalization and FICO debt repayment with a variety of 
     potential revenue sources, including unexpended RTC funds, 
     SAIF premiums and special assessment, BIF-SAIF transfers and 
     Oakar/Sasser FICO contributions.
       Authorizes the FDIC to administer repayment of the FICO 
     bond debt obligation.
       Authorizes the FDIC to administer the unexpended RTC funds 
     and investment income and to allocate such funds for purposes 
     of: payment of FICO debt obligation; capitalization of the 
     SAIF; creation of a reserve to cover potential insurance fund 
     losses in SAIF-insured institutions until SAIF achieves 
     designated reserve ratio; creation of a reserve against 
     federal liability in goodwill cases.
       Authorizes the FDIC to borrow temporarily from either fund 
     limited amounts to permit the other fund to achieve or 
     maintain the designated reserve ratio. The authority to 
     borrow assets or revenue from a fund would be limited at any 
     time to an amount representing .03 percent of the assessment 
     base of the fund.
       Provides FDIC with discretionary authority to require SAIF-
     insured institutions to pay a special, one-time assessment of 
     up to 40 basis points toward recapitalization of the SAIF. 
     The assessment could be collected over a number of years, 
     with a larger percentage payment due to first year to help 
     reduce immediate concern for inadequate fund capitalization. 
     The FDIC would have authority to grant exemptions from this 
     assessment, or reduce such assessment, for troubled 
     institutions or institutions which would become troubled if 
     such an assessment were imposed.
       Provides clarification that the reserve ratio of 1.25 
     percent of estimated insured deposits in the minimum 
     designated reserve ratio required of the BIF and SAIF funds 
     rather than an absolute level that must be maintained or 
     cannot be exceeded.
       Authorizes the FDIC to make appropriate reductions in 
     annual BIF and SAIF premium assessments when the reserves of 
     a fund meet or exceed the minimum designated reserve ratio.
       Provides clarification that insurance fund revenues be used 
     primarily for insurance fund purposes and that premium 
     revenues not be unduly diverted for other purposes.
       Authorizes the FDIC to include a portion of premiums paid 
     by Oakar and Sasser institutions toward payment of FICO debt 
     obligation.
       Eliminates the mandatory 18 basis point minimum annual 
     assessment rate for SAIF-insured institutions in current law.
     

                          ____________________