[Congressional Record Volume 141, Number 93 (Thursday, June 8, 1995)]
[Extensions of Remarks]
[Pages E1197-E1198]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


              FEDERAL DEPOSIT INSURANCE AMENDMENTS OF 1995

                                 ______


                           HON. BILL McCOLLUM

                               of florida

                    in the house of representatives

                        Wednesday, June 7, 1995
  Mr. McCOLLUM. Mr. Speaker, I rise to introduce the Federal Deposit 
Insurance Amendments of 1995, which addresses the weak condition of the 
Savings Association Insurance Fund [SAIF] and the risk that it poses to 
the U.S. taxpayers. This is an issue that must be addressed this year.
  Currently the SAIF insured institutions are required to pay the 
interest and carrying costs on the Financing Corporation [FICO] debt. 
This obligation has been continuously diverting larger portions of the 
SAIF premiums from ever reaching the SAIF. Under the current structure 
two problems exist. First, if the SAIF deposits continue to shrink it 
is likely that there will not be enough money to meet the FICO 
obligation. Second, there will not be enough money to protect the 
taxpayer from losses associated with the thrift fund.
  Today I am proposing a comprehensive solution to the SAIF problem. It 
addresses meeting the FICO obligation and providing an adequate cushion 
for the taxpayer.
  My proposal requires that when the Bank Insurance Fund [BIF] exceeds 
the 1.25 percent designated reserve ratio any excess monies be rebated 
to the banks. This reestablishes the rebate that existed prior to the 
enactment of the Federal Deposit Insurance Corporation Improvement Act.
  In order to safeguard the taxpayer, my proposal assists in the SAIF 
capitalization by spreading the FICO obligation across the BIF and the 
SAIF in proportion to the insured deposits held by members of the 
respective funds. My proposal also extends the availability of funds 
appropriated for the Resolution Trust Corporation [RTC] to cover losses 
from SAIF members until the SAIF reaches the designated reserve ratio. 
This should assure that the SAIF reaches the designated reserve ratio 
in a timely manner.
  The interest earned by the BIF will be used to pay for the BIF 
insured institutions' share of the FICO obligation. The remainder of 
the interest will be paid into the BIF and may be eligible for rebate.
  The Office of the Comptroller of the Currency [OCC] and the Office of 
Thrift Supervision [OTS] will be merged on January 1, 1996. My bill in 
this regard is similar to Chairman Leach's proposal introduced earlier 
this year.
  Upon enactment of this proposal, the Treasury Department will be 
required to complete within 12 months a study on combining the bank and 
savings association charters into a unified charter.
  This bill specifically requires the Treasury to consider issues 
concerning taxes consequences, Federal home loan bank membership, 
regulation of holding companies, and mutual ownership. The Treasury 
will also be required to report back to Congress with a legislative 
proposal as part of this study.
  Finally, when the SAIF reaches the targeted reserve ratio of 1.25 
percent, the BIF and the SAIF will be merged into one fund. Within 12 
months of this merger, the Federal Deposit Insurance Corporation [FDIC] 
shall require that all insured institutions have a bank charter whether 
the new unified charter, State or other bank charters.
  My solution does not affect the reduction in premiums that BIF 
insured institutions are scheduled to receive. The BIF will be fully 
capitalized this year and the FDIC is required to reduce BIF members 
premiums. Nothing in my solution or any other potential solution to the 
SAIF problem should jeopardize this reduction. The FDIC should move 
expeditiously to finalize the required reduction in premiums.
  When the Congress passed Federal Institutions Reform, Recovery, and 
Enforcement Act of 1989 [FIRREA] to address the clean-up of the savings 
and loan crisis, it was based on faulty assumptions. The Congressional 
Budget Office [CBO] and the Office of Management and Budget [OMB] 
predicted thrift deposits would continue to grow at 7 percent annually. 
In reality, the SAIF insured deposits have decreased at an average rate 
of approximately 5 percent per year. Based on the CBO and OMB estimates 
the SAIF should have a $1.3 trillion deposit base. However, there is 
only $721 billion from which to derive premiums.
  One of the results of the faulty assumptions is that the FICO 
interest payments continue to divert larger percentages of thrift 
premiums each year from reaching the SAIF. The FICO obligation is 
sizable, diverting $795 million per [[Page E1198]] year, or 46 percent 
of the premiums, from the SAIF. As the percentage of premiums paying 
the FICO obligation continues to increase, the capitalization of the 
SAIF slows. Without corrective legislation, the SAIF may never 
capitalize, putting the taxpayer at risk.
  In February 1995, the Federal Housing Finance Board noted that 
thrifts are unlikely to meet the FICO interest payments through their 
maturity. Price Waterhouse, FICO's outside auditor, and GAO have 
reported that if the assessment base continues to shrink a FICO default 
will occur by the year 2000.
  The portion of the SAIF deposit base available to pay the FICO 
obligation has declined at an annual rate of 10 percent because 
insurance premiums paid by so-called Oakar and Sasser banks cannot be 
used to pay the FICO obligation. An Oakar bank is a BIF member that has 
acquired a thrift and therefore pays into the BIF and the SAIF. A 
Sasser institution had a savings association charter and has converted 
to either a commercial bank or State
 savings bank. A Sasser bank remains a SAIF member.

  The SAIF is grossly undercapitalized. Currently, the SAIF has $2 
billion in reserves backing up approximately $693 billion of insured 
deposits. This is about 28 cents for every $100 of insured deposits 
which is far below the Congressionally mandated reserve ratio of $1.25 
per $100. In order to meet the designated reserve ratio the SAIF needs 
approximately $8.5 billion, an additional $6.5 billion to its reserves.
  According to Jonathan Fiechter, the Acting Director of the Office of 
Thrift Supervision, ``The SAIF is weak * * * A sudden economic 
downturn, a weakness in a particular real estate market, or unexpected 
stress on the deposit insurance system could overwhelm the thinly 
capitalized SAIF and render it insolvent.''
  An undercapitalized SAIF puts the taxpayer at risk. On June 30 of 
this year the RTC will no longer be responsible for resolving failed 
thrifts. This means that losses in excess of SAIF reserves must be 
covered by the taxpayer.
  According to the FDIC, problem thrifts currently hold $31 billion in 
assets and the SAIF only has $2 billion in reserves. This is simply not 
enough because the failure of one of the large problem thrifts or a 
combination of small problem thrifts could deplete the reserves of the 
SAIF and leave the taxpayer holding the bag, again.
  Additionally, even if the SAIF becomes fully capitalized, the OTS 
believes that the fund will not be sound. A key ingredient to a sound 
insurance fund is size. The fund must be large enough to spread risk 
and absorb a series of simultaneous losses of at least moderate size. 
Since the fund is much smaller than Congress anticipated due to the 
faulty assumptions, the SAIF fails to meet the basic standards of size 
and diversity.
  This issue must be addressed now. The Federal Deposit Insurance 
Amendments of 1995, protects the taxpayer from footing the bill 
resulting from another savings and loan fiasco.


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