[Congressional Record Volume 145, Number 20 (Thursday, February 4, 1999)]
[Senate]
[Pages S1276-S1277]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ENZI:
  S. 377. A bill to eliminate the special reserve funds created for the 
Savings Association Insurance Fund and the Deposit Insurance Fund, and 
for other purposes; to the Committee on Banking, Housing, and Urban 
Affairs.


                 SAIF Special Reserve Elimination bill

 Mr. ENZI. Mr. President, I rise to introduce legislation on 
behalf of myself and the Senator from South Dakota, Senator Johnson. 
This legislation would eliminate the Savings Association Insurance Fund 
(SAIF) special reserve. The Federal Deposit Insurance Corporation 
(FDIC) has indicated that this is one of their top priorities. We feel 
this legislation is important because capitalization of the special 
reserve could potentially destabilize the SAIF.
  The Special Reserve of the Savings Association Insurance Fund (SAIF) 
was established on January 1, 1999. It was created by the Deposit 
Insurance Act of 1996 to provide a backup to the SAIF and further 
protect the taxpayers from another costly bailout of failed financial 
institutions. The law stipulated that the amount in the SAIF special 
reserve should equal the amount by which the SAIF reserve ratio 
exceeded the designated reserve ratio on January 1, 1999. The 
designated reserve ratio is 1.25 percent of estimated insured deposits. 
As a result, on January first of this year, about $1 billion was 
transferred from the SAIF to the special reserve of the SAIF. Now the 
SAIF, because it does not include the amount set aside in the special 
reserve, is capitalized at 1.25 percent of insured deposits.
  The problem with this newly established special reserve is that it 
has the potential to destabilize the SAIF. Since $1 billion was 
transferred into the special reserve, thereby reducing the SAIF to the 
minimum required reserve level of 1.25 percent, the chances that the 
reserve ratio could drop below that level due to adverse circumstances 
has increased significantly. If this ever occurs, the FDIC may assess 
new insurance premiums since the 1996 amendments do not allow the 
special reserve

[[Page S1277]]

funds to be used in the calculation of the SAIF. And new premium on 
thrifts resulting from the special reserve would be unfair and 
discriminatory.
  In addition, the special reserve funds cannot be used unless the SAIF 
reachers a dangerously low level. Current law does not allow the FDIC 
to access the funds in the special reserve until the reserve ratio 
reaches 0.625 percent of the designated ratio, and the FDIC expects the 
ratio to remain at or below that level for each of the next four 
quarters. This does not allow the FDIC to properly manage the SAIF.
  The Enzi/Johnson bill also makes conforming and technical amendments 
requested by the FDIC. These changes would delete provisions of the 
Deposit Insurance Act of 1996 relating to the merger of the two deposit 
insurance funds. The Bank Insurance Fund (BIF) and the SAIF were not 
merged by the target date of January 1, 1999, because savings 
associations are still in existence. Therefore, these provisions are 
unnecessary.
  In conclusion, I urge my colleagues to pass this vitally important 
legislation before a change in the SAIF would create a budgetary 
impact. It represents an appropriate solution to what could be a major 
deposit insurance problem.
                                 ______