Deposit Insurance Funds: Analysis of Insurance Premium Disparity Between
Banks and Thrifts (Chapter Report, 03/03/95, GAO/AIMD-95-84).

Congress, regulators, and others have expressed concern that a
significant insurance premium disparity between banks and thrifts could
arise when the Federal Deposit Insurance Corporation lowers bank
premiums once the Bank Insurance Fund is fully recapitalized.  It is
expected that thrift premiums could be as much as five times greater
than bank premiums because thrift premiums would have to remain higher
to fully capitalize the Savings Association Insurance Fund.  Also,
higher thrift premiums will be needed to pay interest on bonds issued to
help pay for resolving the thrift crisis that developed in the 1980s.
Concerns have been raised that high premiums would place thrifts at a
competitive disadvantage with banks.  This report (1) discusses the
likelihood, the potential size, and the timing of a premium rate
differential between banks and thrifts; (2) analyzes possible effects of
the premium rate differential on the two industries; (3) assesses
potential adverse effects on the Savings Association Insurance Fund's
viability; and (4) identifies ways to avoid or mitigate problems that
the premium rate differential may create.  GAO summarized this report in
testimony before Congress; see: Deposit Insurance Funds: Analysis of
Insurance Premium Disparity Between Banks and Thrifts, by Robert W.
Gramling, Director of Corporate Financial Audits, before the
Subcommittee on Financial Institutions and Consumer Credit, House
Committee on Banking and Financial Services.  GAO/T-AIMD-95-111, Mar.
23, 1995 (23 pages).

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-95-84
     TITLE:  Deposit Insurance Funds: Analysis of Insurance Premium 
             Disparity Between Banks and Thrifts
      DATE:  03/03/95
   SUBJECT:  Funds management
             Insured commercial banks
             Bank failures
             Insurance premiums
             Financial institutions
             Revolving funds
             Savings and loan associations
             Appropriated funds
             Bank deposits
             Interest rates
IDENTIFIER:  Bank Insurance Fund
             Savings Association Insurance Fund
             BIF
             SAIF
             
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Cover
================================================================ COVER


Report to Congressional Requesters

March 1995

DEPOSIT INSURANCE FUNDS - ANALYSIS
OF INSURANCE PREMIUM DISPARITY
BETWEEN BANKS AND THRIFTS

GAO/AIMD-95-84

Deposit Insurance Funds

(917640)


Abbreviations
=============================================================== ABBREV

  BIF - Bank Insurance Fund
  FDIC - Federal Deposit Insurance Corporation
  FDICIA - FDIC Improvement Act of 1991
  FDI - Federal Deposit Insurance
  FICO - Financing Corporation
  FIRREA - Financial Institutions Reform, Recovery, and Enforcement
     Act of 1989
  FRF - FSLIC Resolution Fund
  FSLIC - Federal Savings and Loan Insurance Corporation
  GAO - General Accounting Office
  OTS - Office of Thrift Supervision
  REFCORP - Refinancing Corporation
  RTC - Resolution Trust Corporation
  SAIF - Savings Association Insurance Fund

Letter
=============================================================== LETTER


B-258995

March 3, 1995

The Honorable Alfonse M.  D'Amato
Chairman
Committee on Banking, Housing, and
 Urban Affairs
United States Senate

The Honorable John J.  LaFalce
Ranking Minority Member
Committee on Small Business
House of Representatives

This report responds to your June 10, 1994, request that we (1)
analyze issues related to a possible premium rate disparity that
could occur between banks and thrifts if the Federal Deposit
Insurance Corporation (FDIC) reduces premiums for banks when their
insurance fund recapitalizes before the insurance fund for thrifts is
capitalized, and (2) present various policy options to avoid or
mitigate problems that a premium rate differential may create. 

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from the date of this letter.  At that time, we will send copies of
this report to the Chairman of the Federal Deposit Insurance
Corporation; the Acting Director of the Office of Thrift Supervision;
the Secretary of the Treasury; the Director of the Office of
Management and Budget; the Chairman and Ranking Minority Member of
the House Committee on Banking and Financial Services; the Ranking
Minority Member of the Senate Committee on Banking, Housing, and
Urban Affairs; the Chairman of the House Committee on Small Business;
and other interested parties.  We will also make copies available to
others on request. 

Please call me at (202) 512-9406 if you or your staffs have any
questions concerning the report.  Other major contributors to this
report are listed in appendix IV. 

Robert W.  Gramling
Director, Corporate Financial
 Audits


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

The Congress, administration, regulators, thrift industry, and other
interested parties have expressed concern that a significant
insurance premium disparity between banks and thrifts could develop
when the Federal Deposit Insurance Corporation (FDIC) lowers bank
premiums once the Bank Insurance Fund (BIF) is fully recapitalized. 
It is expected that thrift premiums could be as much as 5 times
greater than bank premiums because thrift premiums would need to
remain at higher levels to fully capitalize the Savings Association
Insurance Fund (SAIF).  Also, the higher thrift premiums would be
needed to pay interest on bonds issued specifically to help pay for
resolving the thrift crisis that developed in the 1980s.  Such a
premium disparity has raised concern that thrifts would be at a
significant competitive disadvantage with banks.  This could
adversely affect the viability of the thrift industry and its
insurance fund, ultimately resulting in the need for appropriated
funds. 

Pursuant to a June 10, 1994, congressional request, GAO's principal
objectives were to (1) determine the likelihood, potential size, and
timing of a premium rate differential between banks and thrifts, (2)
analyze possible effects of the premium rate differential on the two
industries, (3) assess potential adverse effects on SAIF's viability,
and (4) identify policy options to avoid or mitigate problems the
premium rate differential may create. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

The thrift crisis of the 1980s overwhelmed the industry's insurance
fund, resulting in hundreds of billions of dollars in taxpayer
assistance and industry costs to protect insured depositors. 
Legislative action in response to the crisis included establishing
the Financing Corporation (FICO) in 1987 to recapitalize the thrift
insurance fund.  FICO issued $8.2 billion in bonds and was given
authority to assess thrifts for the annual bond interest expense. 
Other legislation (1) established the Resolution Trust Corporation
(RTC) to resolve troubled thrifts, (2) created SAIF as a new
insurance fund for thrifts and retitled the insurance fund for
banks--BIF, (3) designated FDIC as the insurer and administrator of
the two funds, (4) set a designated ratio of reserves to insured
deposits of 1.25 percent ($1.25 for each $100 of deposits) for the
insurance funds, and provided for the designated reserve ratio to be
reached within certain time frames, and (5) gave FDIC authority to
set premiums for the funds to reach the designated reserve ratio. 

As of December 31, 1994, BIF had unaudited reserves of $21.8 billion,
or about 1.16 percent of insured deposits, and SAIF had unaudited
reserves of $1.9 billion, or about 0.27 percent of insured deposits. 
Current average premium rates are 23 cents for every $100 in insured
deposits for banks, and 24 cents for thrifts. 

SAIF originated in 1989 without any initial capital, and funds
authorized for SAIF were not appropriated.  More recent legislation
(1) authorized $8 billion for SAIF for insurance losses, (2) made
available, also for insurance losses, any remaining RTC funding (RTC
is to terminate by year-end 1995) for 2 years under certain
conditions, and (3) increased borrowing authority from the Treasury. 

SAIF's capitalization has been slowed by its members' premiums being
used to pay for certain obligations created in financing the
resolution of the thrift crisis.  From 1989 through 1993, about $6.4
billion, or 84 percent of SAIF's premiums were used for other
obligations created in response to the thrift crisis, including FICO. 
Since 1993, only the FICO obligation has remained.  However, the
thrift industry's assessable base has been shrinking.  Since SAIF's
inception, deposits have declined an average of 5 percent annually,
from $948 billion in 1989 to $711 billion in 1994.  In 1993, the FICO
payments totaled $779 million, or about 46 percent of SAIF's total
insurance premiums. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

Given BIF's current condition and short-term outlook, it is fairly
certain that it will achieve the designated reserve ratio in 1995. 
FDIC has proposed adjusting bank premium rates as early as the
September 1995 payment to reflect the Fund's capitalization date.  In
contrast, current FDIC projections show that SAIF will not be fully
capitalized for another 7 years.  Although the estimation process has
inherent uncertainties, FDIC projects BIF's reduced premiums will
average 4 to 5 basis points, while SAIF's will average 24 basis
points until SAIF is fully capitalized. 

A significant portion of assessments paid by SAIF-insured thrifts is
used to pay FICO's bond interest.  GAO assumed that FDIC would
continue to set SAIF premium rates at a level sufficient to service
the FICO bond interest.  If SAIF-insured thrifts are not assessed for
FICO bond interest, FICO will be unable to pay the interest expense
unless other funding mechanisms are made available.  FDIC officials
advised GAO that they will be examining this matter.  In setting SAIF
premium rates, FDIC stated it has the discretion to consider the
effects on the ability of FICO to meet its obligations. 

SAIF's total deposit base has declined by 25 percent since 1989. 
Further, premiums paid on thrift deposits acquired by banks and
deposits held by former thrifts that converted to bank charters
cannot be used to pay FICO bond interest.  The portion of the base
available to pay FICO has declined by 48 percent.  If the deposit
base continues to decline and if premium levels are set to pay the
FICO bond interest, the premium differential could be significantly
affected. 

Reliable statistical estimates are not available to predict banks'
and thrifts' responses to a premium rate differential.  However,
banks could pass on savings resulting from reduced premiums by
increasing deposit interest rates and improving customer services to
compete more aggressively for deposits.  Thrifts would likely incur
additional costs trying to match bank actions to remain competitive. 

This report discusses a range of options for the Congress and the
administration to consider in dealing with the concerns raised by a
premium differential, including an option of taking no action. 


   GAO'S ANALYSIS
---------------------------------------------------------- Chapter 0:4


      SIGNIFICANT UNCERTAINTIES
      AFFECT TIMING OF SAIF'S
      CAPITALIZATION AND ABILITY
      TO PAY FICO INTEREST
-------------------------------------------------------- Chapter 0:4.1

Long-range estimates of future thrift failures and losses associated
with those failures are very uncertain.  Given the unprecedented size
of the thrift industry crisis, recent thrift failure and loss
experience does not provide a sound basis for estimating future
losses.  In projecting that SAIF would be capitalized in 2002, FDIC
considered historical bank failure rates and current conditions in
the thrift industry and assumed an annual 2 percent shrinkage of
SAIF's deposit base available to pay FICO bond interest. 

FDIC projected that insured institutions holding 0.22 percent of
total thrift industry assets will fail each year and that losses
associated with such failures will average 13 percent of their
assets.  However, if greater annual failure rates of 0.35 percent,
0.53 percent, or 0.70 percent were experienced, SAIF's capitalization
would be delayed until 2004, 2007, or 2010, respectively. 

SAIF's total deposit base has declined by an annual average of 5
percent since 1989, and the portion of the base available to pay FICO
has declined by an annual average of nearly 10 percent.  Although
these declines reflect RTC's resolution of problem thrifts, the
deposit base continues to decline, although at a decreasing rate, and
the portion of the base available to pay FICO interest continues to
decline.  If this experience continues, the premium differential is
likely to increase and the sufficiency of SAIF premiums to pay the
FICO bond interest is threatened. 

At December 31, 1994, SAIF's assessment base available to pay FICO
bond interest was about $500 billion.  Given the current assessment
rate of 24 basis points, that base could shrink to about $325 billion
before premium rates would need to be raised to meet the FICO
obligation.  If shrinkage in the portion of SAIF's assessment base
available to pay FICO were to continue at the average rate
experienced since the Fund's inception, FDIC would need to increase
SAIF's premium rates in the year 2000 to meet the FICO obligation. 

Currently, SAIF does not have a large capital cushion to absorb the
cost of thrift failures.  Thus, SAIF will be vulnerable to the
potential cost of a large thrift failure when it assumes full
resolution responsibility from RTC this year.  While FDIC projections
indicate that SAIF could manage the projected rate of failures, any
delays in SAIF's capitalization will extend the period of risk
associated with a thinly capitalized insurance fund. 


      POTENTIAL EFFECTS OF PREMIUM
      DIFFERENTIAL ON INDUSTRY
      COSTS AND CAPITAL
-------------------------------------------------------- Chapter 0:4.2

Banks and thrifts compete in a wide market, including nondepository
financial institutions, which contributes to uncertainties in
predicting banks' responses to a decline in premium rates.  Although
reliable statistical evidence is not available to predict these
responses, in one illustration GAO assumed banks would pass 50
percent of the savings from reduced premiums to customers and that
thrifts, to remain competitive, would fully match bank actions. 
Using the median thrift return on assets of 1 percent (100 basis
points) and assets financed with 60 to 90 percent of assessable
deposits, the estimated cost increase for these thrifts would be
about 3.9 percent to 5.8 percent of annual after-tax earnings.  A
return on assets of only 0.5 percent (50 basis points) would double
the cost as a share of earnings. 

The duration of a premium rate differential is a significant factor
in determining its impact.  FDIC's projections show a premium rate
differential of 19.5 basis points existing during the years 1996
through 2002.  However, because FICO's bonds will not be fully
liquidated until 2019, a substantial differential could continue an
additional 17 years beyond 2002.  Regardless of its duration, the
impact of the premium differential will be more severe for thrifts
with low earnings and low capital. 


      POLICY OPTIONS
-------------------------------------------------------- Chapter 0:4.3

There are several policy options for decisionmakers to consider to
prevent a premium rate differential between BIF and SAIF members from
occurring or to reduce the size and duration of a differential. 
Taking no action is also an option, but poses significant risk in
terms of SAIF's exposure to thrift failures and the ability to pay
FICO bond interest. 

Most of the options to avoid or mitigate the potential impact of the
premium differential involve shifting some of the costs of
capitalization or future FICO interest payments to either BIF members
or to the taxpayer.  Opponents of any option that involves shifting
all or a portion of the FICO obligation to the banking industry
contend it is unfair to require banks to assist in paying for the
thrift industry's obligation.  Others contend that the institutions
that comprise today's thrift industry were no more responsible for
the thrift crisis of the 1980s than banks. 

The options GAO presents do not attempt to judge the merits of either
side, but rather present the impact of such options on banks and
thrifts, and on eliminating or reducing the risks associated with the
premium differential.  These options include

  -- taking no action at this time, but monitoring the effects of the
     premium differential on the thrift industry and SAIF;

  -- merging BIF and SAIF, and several possible scenarios within that
     option, such as (1) including no initial funding to capitalize
     SAIF and using both BIF- and SAIF-member premiums to pay FICO
     bond interest, (2) assessing SAIF members to capitalize SAIF and
     using BIF- and SAIF-member premiums to pay FICO, and (3)
     including no initial capitalization of SAIF and using only SAIF-
     member premiums to pay FICO;

  -- requiring BIF and SAIF members to share FICO bond interest costs
     proportionally;

  -- using BIF premiums to pay FICO bond interest; and

  -- using appropriated funds to capitalize SAIF or to fund FICO bond
     interest. 

As of December 31, 1995, GAO estimates that the present value cost to
increase SAIF's reserves to the designated ratio and to fund the FICO
bond interest would be $13.8 billion or $14.4 billion, depending on
the source of funding.  GAO has costed out the various policy
options, including the option of taking no action, using these
estimates.  GAO presents the risks to the thrift industry, SAIF, and
the taxpayers under these policy options. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:5

FDIC, the Office of Thrift Supervision (OTS), and the Department of
the Treasury provided written comments on a draft of this report. 
These comments are included as appendixes I, II, and III.  They were
incorporated as appropriate, throughout the report.  FDIC, OTS, and
Treasury generally agreed with the broad analysis presented in the
report.  FDIC, OTS, and Treasury agreed that assumptions used in
FDIC's projections are subject to significant uncertainties, and any
changes in assumed thrift failures and deposit shrinkage could affect
SAIF's ability to attain its target capitalization and its ability to
service the FICO obligation. 

FDIC noted that SAIF's premium income has thus far been sufficient to
pay the annual FICO bond interest and gradually build SAIF's
reserves.  However, at some future date, servicing the FICO
obligation could become an issue if SAIF experiences a dramatic
increase in the portion of its assessment base whose premiums are not
available to pay FICO, or if FDIC reduces premium rates once SAIF
achieves its designated reserve ratio.  FDIC pointed out that, in
setting SAIF's premiums, FDIC has the discretion to consider the
effects of the premium rates on the ability of FICO to meet its
obligations. 

Both OTS and Treasury expressed concern over the risks concerning
taking no action.  OTS emphasized its concerns regarding SAIF's
current capital position, the funding mechanism for FICO bond
interest, and the potential adverse effects of a significant premium
rate disparity.  Treasury emphasized the lack of the thrift
industry's risk diversification, the long-term effect of a premium
differential on the industry, and the limited assessment base for
paying FICO bond interest. 


INTRODUCTION
============================================================ Chapter 1

The Bank Insurance Fund (BIF) has substantially rebuilt its reserves
over the last 3 years from a deficit position at the end of calendar
year 1991.  The Savings Association Insurance Fund (SAIF), while also
building its reserves, is doing so at a significantly slower rate. 

The Congress, administration, savings association trade groups,
regulators, and other interested parties have expressed concern that
a significant disparity in premium rates between BIF and SAIF could
develop when BIF is fully recapitalized if the Federal Deposit
Insurance Corporation (FDIC) lowers BIF's premium rates.  They are
concerned that a significant insurance premium rate differential
could put SAIF-insured institutions at a competitive disadvantage
with their BIF-insured counterparts.  They believe that this, in
turn, could have serious implications for the long-term viability of
the industry and its insurance fund. 

Pursuant to the June 10, 1994, request of the now Chairman of the
Senate Committee on Banking, Housing, and Urban Affairs and the now
Ranking Minority Member of the House Committee on Small Business, we
undertook a review of the issues related to the likelihood that an
insurance premium rate differential would develop between bank and
thrift institutions and the potential impact of such a differential
on the banking and thrift industries and their respective insurance
funds. 


   BACKGROUND
---------------------------------------------------------- Chapter 1:1

During the 1980s, the savings and loan industry experienced severe
financial difficulties, and the deterioration of the industry's
financial condition overwhelmed the resources of its deposit
insurance fund, the Federal Savings and Loan Insurance Corporation
(FSLIC).  By 1988, the condition of the industry and its insurance
fund had reached crisis proportions.  At December 31, 1988, FSLIC
reported a deficit of $75 billion. 

The Financing Corporation (FICO) was established in 1987 to
recapitalize FSLIC.  FICO was funded mainly through the issuance of
public debt offerings, which were limited to $10.8 billion.\1 The net
proceeds of FICO's debt offerings were used to purchase capital stock
and capital certificates issued by FSLIC--in effect, providing
capital to FSLIC.  FICO was authorized to assess FSLIC-insured
institutions for the annual interest expense on the obligations
issued, as well as for bond issuance and custodial costs.  The
industry's problems, however, required far more funding than that
provided through FICO.\2

In response to the thrift crisis, the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (FIRREA) was enacted.  FIRREA
abolished FSLIC and created the Resolution Trust Corporation (RTC) to
manage and resolve all troubled savings institutions that were
previously insured by FSLIC and for which a conservator or receiver
was appointed during the period January 1, 1989, through August 8,
1992.\3

FIRREA also provided RTC with an initial $50 billion for the cost of
resolving these institutions.  FIRREA created a new insurance fund
for thrifts--the Savings Association Insurance Fund, retitled the
insurance fund for banks--the Bank Insurance Fund, and designated
FDIC as sole insurer of all banks and savings associations and
administrator of the insurance funds.\4


--------------------
\1 The Resolution Trust Corporation Refinancing, Restructuring, and
Improvement Act of 1991 later terminated FICO's bond issuance
authority, effectively capping it at $8.2 billion. 

\2 The thrift crisis resulted in hundreds of billions of dollars in
appropriated funds and industry costs to protect insured depositors. 

\3 The RTC Refinancing, Restructuring, and Improvement Act of 1991
extended RTC's resolution authority through September 30, 1993.  This
date was subsequently extended to a date not earlier than January 1,
1995, nor later than July 1, 1995, by the RTC Completion Act.  The
act stated that the final date would be determined by the Chairperson
of the Thrift Depositor Protection Oversight Board.  On December 5,
1994, the Chairperson made the determination that RTC will continue
to resolve failed thrift institutions through June 30, 1995. 

\4 FDIC was created by the Banking Act of 1933 to provide insurance
coverage for bank depositories and to foster sound banking practices. 
FDIC was authorized to promulgate and enforce rules and regulations
relating to the supervision of insured banks and to perform other
regulatory and supervisory duties consistent with its
responsibilities as insurer.  Prior to enactment of FIRREA, FDIC
insurance authority extended only to bank depositories. 


      FIRREA ESTABLISHED
      ASSESSMENT AUTHORITY AND
      CAPITALIZATION LEVELS FOR
      BIF AND SAIF
-------------------------------------------------------- Chapter 1:1.1

FIRREA authorized FICO, with the approval of the FDIC Board of
Directors, to assess SAIF-member savings associations to cover its
interest payments, issuance costs, and custodial fees.  Subsequently,
the RTC Refinancing, Restructuring, and Improvement Act terminated
FICO's authority to issue bonds, but it did not modify FICO's
authority to assess SAIF members to cover its annual interest
expense, which will continue until the 30-year recapitalization bonds
mature in the years 2017 through 2019.\5

FIRREA provided that the amount of FICO's assessment was not to
exceed the amount authorized to be assessed SAIF members by FDIC for
insurance premiums, and that FICO's assessment was to be deducted
from the amount FDIC was authorized to assess SAIF members. 

FIRREA and subsequent legislation also amended the Federal Deposit
Insurance Act (FDI Act), particularly with respect to insurance
assessments.  Under the FDI Act, as amended, the FDIC Board of
Directors is to set semiannual insurance premium rates for SAIF and
BIF independently.  Further, the Board is to set such rates for SAIF
to increase SAIF's reserve ratio to the designated reserve ratio and,
once SAIF attains the designated reserve ratio, to maintain SAIF's
reserve ratio at the designated reserve ratio.  In setting insurance
premium rates, the Board of Directors is required to consider the
Fund's expected operating expenses, case resolution expenditures and
income, the effect of assessments on members' earnings and capital,
and any other factors that the Board of Directors may deem
appropriate. 

The FDI Act, as amended, establishes a designated reserve ratio of
1.25 percent for both BIF and SAIF so that both funds build reserves
sufficient to withstand the pressures of any substantial financial
institution failures in the future.  FDIC's Board of Directors must
set insurance premium rates at a level that will enable each fund to
build its reserves to reach this ratio.  The fund capitalization
provisions added to the FDI Act by the FDIC Improvement Act of 1991
(FDICIA) required FDIC to establish a recapitalization schedule for
BIF to achieve the designated reserve ratio not later than 15 years
after implementation and to set insurance assessments in accordance
with this schedule. 

Until January 1, 1998, FDIC must set SAIF's insurance premium rates
at a level that will enable SAIF to achieve the designated reserve
ratio within a reasonable period of time.  FDIC's Board of Directors
has the authority to lower SAIF premiums to an average annual rate of
18 basis points until January 1, 1998.  After January 1, 1998, FDIC
must set premium rates for SAIF to meet the designated reserve ratio
according to a 15-year schedule.  FDIC may extend the date specified
in the schedule to a later date that it determines will, over time,
maximize the amount of insurance premiums received by SAIF, net of
insurance losses incurred. 

FDIC currently projects that BIF will reach the 1.25 percent
designated reserve ratio during 1995, and SAIF is projected to attain
its ratio in 2002.  As of December 31, 1994, BIF had unaudited
reserves of $21.8 billion, representing approximately 1.16 percent of
insured deposits.  As of the same date, SAIF had unaudited reserves
of $1.9 billion, representing approximately 0.27 percent of insured
deposits.  Currently, BIF-insured institutions are assessed insurance
premiums at a rate averaging 23 cents for every $100 in deposits
subject to assessments (23 basis points), while SAIF-insured
institutions are assessed at premium rates averaging 24 cents for
every $100 of assessable deposits (24 basis points).\6


--------------------
\5 Fifteen percent of the outstanding bond principal matures in the
year 2017, 57 percent matures in 2018, and the remaining 28 percent
matures in 2019.  FICO's bond principal will be paid using the
proceeds of its investments, which have a face value sufficient to
repay the principal amount upon maturity. 

\6 As required by the FDI Act, as amended, FDIC has implemented a
risk-based assessment system that charges higher rates to those
institutions that pose greater risks to the insurance funds.  Banks
and thrifts currently pay an assessment rate of between 23 cents and
31 cents per $100 of assessable deposits, depending on their risk
classifications. 


      ORIGINAL AUTHORIZED FUNDING
      FOR SAIF WAS NOT
      APPROPRIATED
-------------------------------------------------------- Chapter 1:1.2

SAIF was created without any initial capital, and from SAIF's
inception through December 31, 1992, FICO, the Resolution Funding
Corporation (REFCORP),\7 and the FSLIC Resolution Fund (FRF)\8 had
prior claim on a substantial portion of SAIF members' insurance
premiums.  During the period 1989 through 1993, approximately $6.4
billion, or 84 percent of SAIF's insurance premiums, were used to
fund the priority claims of FICO, REFCORP, and FRF.  Beginning in
1993, only FICO continued to have prior claim on SAIF members'
insurance premiums, with SAIF receiving the remaining amount.  In
1993, FICO received $779 million, which represented approximately 46
percent of SAIF's total insurance premiums for that year. 

To address the problem of SAIF's capitalization in light of the other
claims on its insurance premiums, the FDI Act, as amended by FIRREA,
provided for two types of supplemental funding from the
Treasury--backup funding for SAIF insurance premiums and payments to
maintain a minimum fund balance.  As subsequently amended by the RTC
Refinancing, Restructuring, and Improvement Act of 1991, these
provisions required the Treasury to provide funding to SAIF each
fiscal year from 1993 to 2000 to the extent that the SAIF-member
insurance premiums deposited in the Fund did not total $2 billion a
year.  This would have assured SAIF of at least $16 billion in either
premium income or Treasury payments.  In addition, Treasury was
authorized to make annual payments necessary to ensure that SAIF had
a specific net worth, ranging from zero during fiscal year 1992 to
$8.8 billion during fiscal year 2000.  The cumulative amounts of
these payments were also not to exceed $16 billion.  The FDI Act, as
amended, also authorized funds to be appropriated to the Secretary of
the Treasury for purposes of these payments.  However, none of the
funds authorized were actually appropriated. 


--------------------
\7 REFCORP was established by FIRREA to provide funding for RTC. 
REFCORP was entitled to SAIF insurance premiums in order to purchase
zero-coupon bonds to finance its activities.  REFCORP ceased its bond
issuance activities in 1991 and, therefore, has no further claim to
SAIF insurance premiums. 

\8 FRF was established by FIRREA to liquidate the assets and
liabilities of the former FSLIC and was entitled, through December
31, 1992, to the SAIF-member premiums not taken by FICO or REFCORP. 


      CURRENT FUNDING PROVISIONS
      FOR SAIF CONTAIN SIGNIFICANT
      RESTRICTIONS
-------------------------------------------------------- Chapter 1:1.3

The funding provisions contained in the FDI Act were again amended in
December 1993 by the RTC Completion Act.  The amendments authorize
Treasury payments of up to $8 billion to SAIF for insurance losses
incurred in fiscal years 1994 through 1998.  Additionally, before any
funds can be made available to SAIF for this purpose, FDIC must
certify to the Congress, among other things, that (1) SAIF-insured
institutions are unable to pay premiums sufficient to cover insurance
losses and to meet a repayment schedule for any amount borrowed from
the Treasury for insurance purposes under the FDI Act, as amended,
without adversely affecting their ability to raise and maintain
capital or to maintain the assessment base and (2) an increase in
premiums could reasonably be expected to result in greater losses to
the government. 

The RTC Completion Act also makes available to SAIF any of the RTC's
unused loss funding to cover insurance losses during the 2-year
period beginning on the date of RTC's termination.  However, SAIF's
use of this funding is subject to restrictions similar to those of
the Treasury funding authorized under the act. 

Additionally, FDICIA provided SAIF a mechanism for funding insurance
losses.  Specifically, FDICIA authorized FDIC to borrow up to $30
billion from the Treasury, on behalf of SAIF or BIF, for insurance
purposes.  No borrowing has yet occurred, however, BIF or SAIF would
have to repay any amounts borrowed from the Treasury with premium
revenues.  Also, FDIC would have to provide the Treasury with a
repayment schedule demonstrating that future premium revenue would be
adequate to repay any amounts borrowed plus interest.  Additionally,
the amount of such borrowings is further restricted by a formula
limiting each fund's total obligations. 


      FICO OBLIGATION REQUIRES
      GREATER PORTION OF
      ASSESSMENTS THAN ORIGINALLY
      ASSUMED
-------------------------------------------------------- Chapter 1:1.4

At the time FIRREA was enacted, the administration projected annual
thrift deposit growth of 6 to 7 percent.  Under this assumption, the
annual FICO interest obligation would have accounted for 7 basis
points (29 percent) of the 24 basis points charged annually for SAIF
premiums.  Since SAIF's inception, however, total SAIF deposits have
declined an average of 5 percent annually, from $948 billion in 1989
to $711 billion in 1994.  As a result, the annual FICO interest
obligation is being spread over a smaller than anticipated assessment
base.  Thus, the FICO interest obligation represents a significantly
higher proportion of the assessment rate and the premiums paid by
SAIF members than originally assumed. 


      GROWING SEGMENT OF SAIF
      ASSESSMENT BASE IS NOT
      AVAILABLE TO SERVICE FICO
      OBLIGATION
-------------------------------------------------------- Chapter 1:1.5

Another factor which exacerbates the problem of shrinkage in SAIF's
assessment base is the growth of a segment of the SAIF assessment
base whose premiums may not be used to fund the FICO interest
obligation.  This segment of SAIF's assessment base includes deposits
which have been acquired by BIF members from SAIF members, and former
savings associations that have converted to bank charters while
retaining SAIF membership. 

Thrift deposits acquired by BIF members, referred to as "Oakar"
deposits, retain SAIF insurance coverage, and the acquiring
institution pays insurance premiums to SAIF for these deposits at
SAIF's premium rates.  However, because the institution acquiring
these deposits is not a savings association and remains a BIF member
as opposed to a SAIF member, the insurance premiums it pays to SAIF,
while available to capitalize the Fund, are not available to service
the FICO interest obligation.  When the acquisition occurs, FDIC
establishes a ratio of BIF-insured deposits to SAIF-insured deposits
for the BIF member acquiring institution.  This ratio remains
constant for the institution in the event of subsequent deposit
growth or shrinkage.  Similarly, premiums paid by SAIF-member savings
associations that have converted to bank charters, referred to as
"Sasser" institutions, are unavailable to fund the FICO interest
obligation since the institutions are banks as opposed to savings
associations. 


      INSTITUTION CONVERSIONS FROM
      SAIF TO BIF MEMBERSHIP ARE
      RESTRICTED UNTIL SAIF IS
      CAPITALIZED
-------------------------------------------------------- Chapter 1:1.6

Currently, SAIF-insured institutions cannot voluntarily change or
convert their membership from SAIF to BIF.  The FDI Act, as amended,
contains a moratorium on conversions from SAIF to BIF except in
limited cases where (1) the conversion transaction affects an
insubstantial portion of the total deposits of the institution as
determined by FDIC and (2) the conversion occurs in connection with
the acquisition of a SAIF member in default or in danger of default
and FDIC determines that the benefits to SAIF or RTC equal or exceed
FDIC's estimate of the loss of insurance premium income over the
remaining balance of the moratorium period and RTC concurs with
FDIC's determination.  Once SAIF is fully capitalized, the moratorium
on conversions will be lifted.  However, institutions converting
their membership will be subject to substantial entrance and exit
fees. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:2

As directed by the requesters' June 10, 1994, letter, our objectives
were to (1) determine the likelihood, potential size, and timing of a
differential in premium rates between BIF- and SAIF-insured
institutions, (2) analyze possible effects of the premium rate
differential on the thrift and banking industries, (3) assess
potential threats to SAIF's viability, and (4) present various policy
options to avoid or mitigate problems which a premium rate
differential may create.  As agreed with the requesters, we did not
analyze the potential effects of the premium rate differential on the
availability of housing finance. 

To address the above questions, we obtained background information
and data from officials at FDIC, the Office of Thrift Supervision
(OTS), the Board of Governors of the Federal Reserve System, the
Federal Housing Finance Board, and the Department of the Treasury. 
We also met with officials at the Savings and Community Bankers
Association, the California League of Savings Institutions, the
Savings Association Insurance Fund Industry Advisory Committee
(SAIFIAC), the American Bankers Association, and other knowledgeable
parties who provided us with information and their perspectives. 

For our analyses, we relied on FDIC's projected capitalization
schedules for BIF and SAIF, and detailed financial data for
SAIF-member institutions.  We also relied on information reported by
FDIC regarding troubled thrifts and potential future failures.  We
verified that key beginning figures in FDIC's capitalization
schedules were reasonable in relation to BIF's and SAIF's financial
statements; however, we did not audit the data presented in the
schedules.  Also, we did not audit the detailed financial data for
SAIF members provided by FDIC, nor did we audit the information
regarding troubled thrifts and potential future failures reported by
FDIC. 

In order to determine the likelihood, potential size, and timing of a
differential in premium rates between BIF- and SAIF-insured
institutions and to assess the future outlook for SAIF, we identified
the major assumptions underlying FDIC's projected capitalization
schedules for BIF and SAIF.  We considered the potential effects of
major uncertainties associated with these assumptions as well as
other uncertainties affecting the duration of a differential in
premium rates.  We also analyzed the effects of various institution
failure rates on SAIF's ability to attain its designated reserve
ratio.  Additionally, we analyzed the effects of shrinkage in the
portion of SAIF's assessment base available to pay FICO on SAIF's
ability to finance the annual interest obligation to FICO's
bondholders. 

In order to analyze the possible effects of the premium rate
differential on the thrift and banking industries, we developed
economic scenarios as a framework to forecast the potential magnitude
of the impact of FDIC's projected premium differential.  We used this
approach due to the lack of reliable statistical estimates of the
likely behavioral responses of banks and thrifts resulting from a
differential in premium rates.  Using detailed financial data for
SAIF members on a national level, we converted the premium
differential into a cost increase for SAIF members.  We also analyzed
data for SAIF-member institutions in California, a state with a
significant level of thrift assets.  In our calculations, we used
FDIC's projected premium rate differential between BIF and SAIF. 

We used information gained throughout the assignment to present
various options available for mitigating or avoiding the potential
problems associated with a premium differential between BIF and SAIF. 
We altered assumptions in FDIC's BIF and SAIF projection schedules to
correspond with some of the options presented. 

We conducted our work in Washington, D.C., from August 1994 through
February 1995 in accordance with generally accepted government
auditing standards. 

FDIC, OTS, and the Department of the Treasury provided written
comments on a draft of this report.  These comments have been
incorporated, as appropriate, throughout this report, and are
reprinted in appendixes I through III. 


PREMIUM RATE DIFFERENTIAL COULD
OCCUR AND SAIF'S FUTURE OUTLOOK IS
UNCERTAIN
============================================================ Chapter 2

A significant differential in premium rates charged by BIF and SAIF
will develop in 1995, if FDIC lowers rates for BIF members
immediately after BIF reaches its designated reserve ratio in 1995. 
FDIC projections indicate that, beginning in 1996, SAIF's premium
rates will be more than five times the rate of BIF premiums until
SAIF's projected capitalization in the year 2002.  The premium rate
differential could continue for the duration of the FICO interest
obligation if SAIF-insured thrifts continue to be assessed at rates
sufficient to pay the interest on the FICO bonds.  Significant
uncertainties exist with respect to key assumptions in FDIC's
projection schedules, including institution failure and loss
assumptions, and future shrinkage in the portion of SAIF's deposit
base available to fund the FICO interest obligation.  These factors
could affect SAIF's capitalization date and future premium rates. 


   A SIGNIFICANT PREMIUM RATE
   DIFFERENTIAL COULD DEVELOP IN
   1995
---------------------------------------------------------- Chapter 2:1

FDIC's current projections for BIF indicate that BIF will attain its
designated ratio of reserves to insured deposits of 1.25 percent in
1995.  Given the Fund's current condition and short-term outlook, it
is fairly certain that BIF will achieve the designated reserve ratio
in 1995.  In response to the Fund's rapid improvement and its current
outlook, on January 31, 1995, FDIC's Board of Directors issued for
public comment a proposal that would significantly reduce the average
annual premium rates charged to BIF-insured institutions.  FDIC's
Board of Directors could adjust BIF-member premium rates as early as
the September 30, 1995, payment date to reflect the date in which the
Fund achieves the designated reserve ratio.  FDIC's projections for
SAIF indicate that SAIF will attain its designated reserve ratio in
the year 2002, 7 years later than BIF. 

FDIC projects that BIF insurance premium rates will average 4 to 5
basis points (4 to 5 cents per $100 of deposits) after BIF reaches
its designated reserve ratio.  FDIC estimates that this rate will be
sufficient to cover future insurance losses and maintain the Fund's
reserve ratio.  In contrast, FDIC projects that SAIF's premium rates
will remain at an average of 24 basis points, more than five times
the rate for BIF-insured institutions, until SAIF reaches its
designated reserve ratio.  (See figure 2.1.)

   Figure 2.1:  SAIF and BIF
   Premium Rates Projected by FDIC

   (See figure in printed
   edition.)

Because of the potential magnitude of the differential in premium
rates between BIF and SAIF that could develop under the Board's
proposal and the potential effects such a differential could have on
thrifts and their insurance fund, the Director of OTS, at the January
31, 1995, FDIC Board meeting requested that the Board hold public
hearings to discuss the issues and concerns raised by the Board's
proposal.  We concur with the OTS Director's request and believe such
hearings would be a useful forum for examining the implications
associated with the premium rate disparity that would develop under
the Board's proposal. 

Uncertainties inherent in the estimation process could result in the
actual premium rate differential being significantly different from
the projected differential in any given year.  However, it is fairly
certain that a period of high premium rate differentials will exist
between BIF and SAIF until SAIF reaches its designated reserve ratio. 


   FUTURE PAYMENT OF FICO BOND
   INTEREST
---------------------------------------------------------- Chapter 2:2

Since FICO bonds were first issued in 1987, the thrift industry has
paid assessments for the annual interest expense on FICO's bonds. 
FDIC projections are that SAIF will achieve its designated reserve
ratio in 2002 and that SAIF-insured thrifts will be assessed for FICO
bond interest through that time.  For purpose of our analyses, we
assume that assessments of SAIF-insured thrifts for FICO bond
interest will continue until the bonds mature in 2017 through 2019. 

If FICO assesses\1 SAIF members to pay the annual FICO interest,
using the assumptions underlying FDIC's projections, annual
assessment rates could be lowered to approximately 19 basis points
after SAIF attains its designated reserve ratio.  However, these
rates would need to be gradually increased as the portion of SAIF's
assessment base available to pay FICO decreases.  This would result
in a substantial premium rate differential continuing through the
liquidation of FICO bonds, while at the same time increasing the
Fund's reserve ratio to a level significantly higher than the
designated reserve ratio.\2 The premium rates for SAIF and the
resulting differential could be even higher under scenarios where the
portion of the SAIF assessment base available to pay FICO interest
experiences significant shrinkage. 

FDIC official projections on assessments for SAIF-insured thrifts do
not go beyond the year 2002 or otherwise address to what extent
SAIF-insured thrifts may be assessed for FICO bond interest after
SAIF achieves its designated reserve ratio.\3 If SAIF-insured thrifts
are not assessed for the FICO bond interest, FICO will be unable to
pay the interest expense unless other funding mechanisms are made
available.  FDIC officials advised us that they will be examining
this issue.  In its comments on a draft of this report, FDIC stated
that in setting SAIF premiums, it may consider FICO assessments and
the effects of SAIF premiums on the ability of FICO to meet its
obligations.  However, FDIC's comments also reflected the tension
that FDIC may face at some future time between its duty to protect
SAIF and FICO's debt service requirements. 


--------------------
\1 As previously discussed, the approval of FDIC's Board of Directors
is required for FICO assessments of SAIF members. 

\2 This assumes that Oakar and Sasser institutions continue to be
charged premiums at a rate FDIC determines is sufficient to maintain
the Fund's designated reserve ratio and service the FICO bond
interest.  Because Oakar and Sasser premiums cannot be used for this
latter purpose, their premiums would serve to further increase the
Fund's reserves. 

\3 Although FDIC published projections showing SAIF's balance and
designated reserve ratio through the year 2012 in the Federal
Register on February 16, 1995, these projections do not indicate the
assessment rates to be charged insured institutions. 


   UNCERTAINTIES REGARDING FAILURE
   RATES AND LOSS ASSUMPTIONS
   AFFECT TIMING OF SAIF'S
   CAPITALIZATION
---------------------------------------------------------- Chapter 2:3

SAIF's ability to achieve its designated reserve ratio in 2002 as
currently projected by FDIC is subject to significant uncertainties
regarding assumed institution failure rates and associated losses
used by FDIC in its projections.  Long-range estimates of future
thrift failures and losses associated with those failures are
extremely uncertain.  The health of the industry is subject to many
variables which are extremely difficult to predict, such as changes
in interest rates, the economy, and real estate markets.  If
financial institution failures and associated losses for SAIF are
higher than those projected, SAIF may not achieve its designated
reserve ratio in the time frame projected by FDIC. 

Because of the unprecedented nature of the thrift industry crisis,
recent thrift failure and loss experience may not provide a sound
basis for estimating future losses.  Also, requirements for corporate
governance and accounting reforms and prompt corrective action by
regulators are intended to prevent such high levels of financial
institution failures in the future and to limit the losses associated
with those that do fail.\4 For these reasons, FDIC used historical
bank failure rates, rather than thrift failure rates, as a
consideration in projecting future SAIF-institution failures.  FDIC
also considered current conditions in the thrift industry in
projecting SAIF- institution failures.  Additionally, FDIC used
historical losses on failed bank assets to estimate SAIF's future
losses on failed institution assets. 

Because recent bank failure rates also may not provide a sound basis
for projecting future failures due to recent, significant changes in
the business and regulatory environments for financial institutions,
FDIC adjusted the average of BIF's failure rate over the last 20
years to arrive at the rate used in SAIF's projections.  The
institution failure rates used in SAIF's projections are about
one-half the average bank failure rate over the last 20 years. 
Specifically, FDIC projected that, beginning in 1996, institutions
holding approximately 0.22 percent of total industry assets will fail
each year.  (See figure 2.2.)

   Figure 2.2:  Failed Bank Asset
   Experience and Future
   Projections for SAIF

   (See figure in printed
   edition.)

FDIC projected that losses associated with the failures of such
institutions will be 13 percent of their assets, which is
approximately the average loss experience on failed bank assets over
the last 20 years.  However, the loss rates have fluctuated
significantly from year to year, and future loss rates could be
significantly different from those projected.  (See figure 2.3.)

   Figure 2.3:  Failed Bank Loss
   Rates and Future Projections
   for SAIF

   (See figure in printed
   edition.)

In addition to the uncertainties associated with failure and loss
rates, the rates used in FDIC's projections are constant.  As such,
they spread the effects of business cycles across all of the years
presented.  Consequently, the effects of business cycles could cause
actual insurance losses for any given year to vary significantly from
what FDIC's projections indicate. 


--------------------
\4 The Federal Deposit Insurance Corporation Improvement Act of 1991
(Public Law 102-242, December 19, 1991). 


      HIGHER THAN PROJECTED
      FAILURES COULD DELAY SAIF'S
      CAPITALIZATION
-------------------------------------------------------- Chapter 2:3.1

If SAIF experiences a higher level of failures than assumed by FDIC
in its projections and all other factors are held constant, the
Fund's ability to capitalize by the year 2002 would be seriously
jeopardized.  As of September 30, 1994, FDIC reported in the FDIC
Quarterly Banking Profile - Third Quarter 1994 that 62 SAIF members
with $47 billion in assets were considered problem institutions, with
financial, operational, or managerial weaknesses that threaten their
continued financial viability.  It is difficult to reliably predict
the amount and timing of institution failures, even for problem
institutions.  Not all problem institutions ultimately fail; many,
historically, have corrected conditions that caused regulatory
concerns and strengthened their financial condition.  Conversely,
institutions not currently considered to be problem institutions
could become troubled as a result of unfavorable changes in future
economic conditions, including changes in interest rates and real
estate markets. 

Currently, FDIC projections show that failures totaling 31 percent of
the assets in the current group of SAIF-insured problem institutions
are estimated to fail between 1996 and 2002, on which SAIF is
projected to incur losses equal to 13 percent.  If future failures
are higher than projected and premium rates remain unchanged at the
average annual rate of 24 basis points, SAIF's capitalization could
be delayed.  (See table 2.1.)



                               Table 2.1
                
                  Effects of Various Failure Rates on
                         SAIF's Capitalization

                                      Percent of
                                           12/94     Total
                                         problem     asset     Year of
                                          assets  failures        SAIF
Total annual asset failure rate         failing:     1996-  capitaliza
(percent)                              1996-2002      2002        tion
----------------------------------  ------------  --------  ----------
0.22                                          31       $15        2002
 (FDIC projection)                                 billion
0.35                                          50       $24        2004
                                                   billion
0.53                                          75       $35        2007
                                                   billion
0.70                                         100       $47        2010
                                                   billion
----------------------------------------------------------------------
Another uncertainty affecting the projected institution failure and
loss rates for SAIF is the potential effect of a premium rate
differential on SAIF institutions.  FDIC's failed asset projections
for SAIF do not explicitly consider the possible effects of a premium
rate differential on thrift failures.\5


--------------------
\5 FDIC is currently finalizing an internal study entitled Analysis
of Issues Confronting the SAIF, which is expected to be published in
February 1995.  This study does analyze the impact of a 5- and
20-basis point premium differential on SAIF-member failures. 


   UNCERTAINTIES REGARDING
   ASSESSMENT BASE GROWTH
   ASSUMPTIONS AFFECT SAIF
   MEMBERS' ABILITY TO PAY FICO
   INTEREST
---------------------------------------------------------- Chapter 2:4

FDIC projected an annual deposit shrinkage of 2 percent for the
portion of SAIF's deposit base available to service the annual FICO
interest obligation.  However, significant uncertainties exist
regarding FDIC's assumptions of changes in SAIF's future assessment
base.  Since SAIF's inception, both its total deposit base and the
portion available to pay FICO have experienced significant shrinkage. 
With the pending significant differential between BIF and SAIF
premium rates, the SAIF deposit base available to service FICO bond
interest may decline by more than the 2-percent annual rate projected
by FDIC. 


      THE FICO ASSESSMENT BASE HAS
      EXPERIENCED DRAMATIC
      SHRINKAGE
-------------------------------------------------------- Chapter 2:4.1

Currently, about 31 percent of SAIF's assessment base belongs to
institutions whose premiums are not subject to FICO assessments. 
About 24 percent of SAIF's assessment base consists of Oakar
deposits, which are held by BIF members, and about 7 percent is held
by Sasser institutions, former savings associations that have
converted to bank charters yet retain SAIF membership.  As explained
in chapter 1, the insurance premiums paid on these deposits cannot be
used to pay FICO, since FICO's assessment authority to pay its costs
extends only to SAIF-member savings associations. 

SAIF's total deposit base has declined by 25 percent since its
inception, or an average decline of 5 percent each year, from $948
billion in 1989 to $711 billion in 1994.  The portion of SAIF's base
available to pay FICO--the FICO assessment base--has experienced a
decline of 48 percent since SAIF's inception, or an average annual
decline of almost 10 percent.  (See figure 2.4.)

   Figure 2.4:  SAIF Deposit Base
   Shrinkage Since Inception

   (See figure in printed
   edition.)

It is difficult to predict future shrinkage in the portion of SAIF's
assessment base available to pay FICO.  Growth in Oakar deposits from
BIF-member acquisitions of thrift deposits causes shrinkage in the
portion of SAIF's assessment base available to pay FICO.  The amount
of Oakar deposits has grown rapidly since SAIF's inception.  Between
1990 and 1994, Oakar deposits have increased by $136 billion, to a
total deposit base of $167 billion.  Coupled with a decline in SAIF's
total deposit base, Oakar deposits have grown substantially as a
portion of SAIF's deposit base.  Deposits in Sasser institutions,
although significant, have not experienced substantial growth. 

Some of the past growth in Oakar deposits resulted from BIF-member
institutions acquiring deposits from thrifts resolved by RTC.  The
unprecedented high number of thrift failures is unlikely to continue. 
However, it is not possible to predict future BIF-member acquisitions
of thrift deposits due to voluntary shrinkage within the thrift
industry.  For example, in 1993 and 1994, the increase in Oakar
deposits was significantly greater than the amount of deposits in
institutions resolved by the RTC during this period. 

Consequently, it is difficult to predict future growth in Oakar
deposits.  Nonetheless, if SAIF's Oakar deposits grow at only the
2-percent annual growth rate FDIC projects for BIF members, while the
portion of SAIF's assessment base available to pay FICO experiences
the 2-percent annual decline projected by FDIC, the Oakar portion of
SAIF's assessment base will continue to increase in proportion to the
Fund's total assessment base.  This would result in a continually
decreasing portion of SAIF's total annual premium income being
available to service the FICO interest obligation. 


      GREATER SHRINKAGE IN SAIF'S
      ASSESSMENT BASE COULD RESULT
      IN HIGHER PREMIUM RATES THAN
      PROJECTED
-------------------------------------------------------- Chapter 2:4.2

Changes in SAIF's assessment base could also have a significant
effect on the premium rates charged to institutions with SAIF-insured
deposits.  Assuming payments for the FICO interest obligation are
included in SAIF's premium rates, FDIC's projections indicate that
the portion of SAIF's assessment base available to pay FICO cannot
withstand significant shrinkage without FDIC having to increase
insurance premium rates in order to fund the annual FICO interest
obligation. 

The portion of SAIF's assessment base available to pay FICO totaled
about $500 billion at December 31, 1994.  At the current assessment
rate of 24 basis points, the base could shrink to approximately $325
billion before premium rates would need to be increased in order to
pay the FICO obligation.  Under FDIC's assumptions of a 2-percent
decline in the portion of SAIF's base available to pay FICO and no
future purchases of thrift deposits by BIF members, premiums would
need to be increased in about the year 2012 in order to pay the FICO
obligation.  If the average of past SAIF deposit shrinkage and
purchases of thrift deposits by BIF members were to continue, SAIF
would need to increase rates in the year 2000 in order to raise
enough funds to pay the FICO obligation. 

With the pending significant differential between BIF and SAIF
premium rates, the SAIF deposit base is likely to continue declining
in the foreseeable future.  To reduce the burden of a significant
cost disadvantage in relation to BIF members, SAIF members could
place less reliance on deposits as a source of funding and turn to
alternative sources, such as Federal Home Loan Bank advances and
repurchase agreements.\6 The differential could also accelerate
deposit shrinkage within institutions, further reducing SAIF's
assessment base.  This, in turn, could cause further increases in
premium rates to fund the fixed FICO interest obligation. 

The future ability of SAIF-insured institutions to voluntarily
convert from SAIF to BIF membership is another factor that could
significantly impact SAIF's future assessment base.  Generally,
institutions cannot currently convert their membership from SAIF to
BIF until SAIF achieves its designated reserve ratio.  Once SAIF
reaches its reserve ratio, the moratorium in effect for conversions
from SAIF to BIF membership will be lifted.  Institutions converting
from SAIF to BIF membership will pay an exit fee to SAIF and an
entrance fee to BIF.\7 Whether or not institutions will be motivated
to voluntarily convert from SAIF to BIF when the moratorium is lifted
will depend, in part, on the cost of the fixed FICO interest
obligation in relation to the SAIF assessment base at the time. 

Given the fact that the premium rate differential could continue
after SAIF's capitalization for the duration of the FICO obligation,
institutions could find it beneficial to convert their membership to
avoid continued payment of higher premiums than those paid by BIF
members.  Therefore, institutions could be motivated to convert from
SAIF to BIF membership based on cost.  This voluntary conversion
would cause further shrinkage in SAIF's assessment base, which would
make the fixed FICO obligation relatively more expensive for the
shrinking base, in turn, causing additional shrinkage in the base. 


--------------------
\6 The substitution of these funding sources for deposits carries the
risk of additional losses to SAIF were these institutions to fail. 
This is due to the fact that Federal Home Loan Bank advances and
repurchase agreements are fully collateralized and have priority over
SAIF's claims resulting from payments to depositors in the event the
institution is closed and its assets liquidated to satisfy its
obligations. 

\7 Currently, FDIC regulations set the amount of exit fees payable to
SAIF in connection with a conversion transaction as a result of which
insured deposits are transferred from a SAIF member to a BIF member
at 90 basis points multiplied by the amount of total deposits
transferred to BIF.  BIF entrance fees payable in connection with
such a transaction are calculated by multiplying the dollar amount of
total deposits transferred by the BIF reserve ratio at the time of
conversion.  If BIF's reserve ratio is 1.25 percent, the entrance fee
would be 125 basis points.  Thus, an institution would have to pay
215 basis points (90 + 125) multiplied by its deposit base in order
to convert to BIF membership after SAIF reaches its designated
reserve ratio. 


   THINLY CAPITALIZED INSURANCE
   FUND IS RISKY
---------------------------------------------------------- Chapter 2:5

As of December 31, 1994, SAIF had unaudited reserves of $1.9 billion,
representing approximately 0.27 percent of insured deposits, or 27
cents for every $100 in insured deposits.  FDIC projects that SAIF's
reserves will gradually increase until SAIF reaches its designated
reserve ratio in 2002, with approximately $8.0 billion in reserves. 
(See table 2.2.)



                               Table 2.2
                
                    FDIC-Projected Reserves for SAIF

                                199  199  199  199  199  200  200  200
                                  5    6    7    8    9    0    1    2
------------------------------  ---  ---  ---  ---  ---  ---  ---  ---
Reserves (billions)             $2.  $3.  $4.  $4.  $5.  $6.  $7.  $8.
                                  4    3    1    8    6    5    3    0
Reserve ratio                   0.3  0.4  0.6  0.7  0.8  1.0  1.1  1.2
 (percent)                        5    9    1    4    6         4    5
----------------------------------------------------------------------
To date, few demands have been placed on SAIF for resolution of
failed institutions, since the primary responsibility for resolving
failed thrifts has been with RTC.  However, RTC's authority to place
failed thrifts into conservatorship expires on June 30, 1995, at
which time SAIF will assume full responsibility for failures of
SAIF-insured institutions. 

Currently, SAIF does not have a large capital cushion to absorb the
cost of thrift failures.  Although FDIC's projections indicate that
SAIF could manage the currently projected rate of failures, the
failure of a single large institution or a higher than projected
level of failures could delay SAIF's capitalization and increase the
risk of SAIF becoming insolvent.  SAIF's exposure will continue until
its reserves are substantially increased. 

Although the condition of the thrift industry has substantially
improved over the past few years, a large segment of the industry is
still confronting weak economic conditions.  The nation's seven
largest thrift institutions are headquartered in California and hold
23 percent of the industry's assets.  In general, California has
lagged behind most of the nation in recovering from the most recent
recession.  Additionally, a few large institutions have raised
supervisory concerns due to low earnings and relatively high levels
of risk in their portfolios.  Therefore, SAIF still faces significant
exposure relative to its current level of reserves.  Any delays in
SAIF's capitalization will only extend the period of risk associated
with a thinly capitalized insurance fund. 

It should be noted, however, that the prompt corrective action
provisions and regulatory requirements in FDICIA were designed to
minimize losses to the insurance funds.  The degree to which
regulators exercise their regulatory and supervisory responsibilities
under these provisions will thus be a significant factor in
preventing or minimizing SAIF's future insurance losses from thrift
failures. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 2:6

A significant premium rate differential will develop in 1995 if FDIC
lowers deposit insurance premium rates for BIF members after BIF
reaches its designated reserve ratio, although the duration and
magnitude of the rate differential are subject to significant
uncertainties.  FDIC's projections indicate that significant premium
rate differentials will exist between BIF and SAIF until SAIF's
capitalization.  Although FDIC projects that SAIF will reach its
designated reserve ratio in the year 2002, the timing is uncertain
and could be affected by higher than projected insurance losses from
failed institutions.  Assuming SAIF-insured thrifts continue to be
responsible for paying the FICO bond interest, the differential in
premium rates will continue after SAIF's capitalization for the
duration of the FICO obligation.  Accelerated shrinkage in the
portion of SAIF's assessment base available to pay FICO could also
cause SAIF premiums to be even higher than the current average rate
of 24 basis points. 

SAIF's outlook is tenuous given the various uncertainties surrounding
its exposure to insurance losses from future financial institution
failures and changes in its assessment base, along with the impact of
a significant premium rate disparity between its members and those of
BIF.  Because the fixed FICO obligation is significant in relation to
the portion of SAIF's assessment base whose premiums can be used to
pay FICO, future shrinkage in SAIF's assessment base, or additional
purchases of thrift deposits by BIF members could affect SAIF
members' ability to pay the FICO obligation.  SAIF's premium rates
could be higher than projected, causing the premium differential to
be larger than currently projected.  The higher premium rates could
induce further shrinkage in SAIF's assessment base and jeopardize
future payment of the FICO interest obligation. 


PREMIUM RATE DIFFERENTIAL WILL
IMPACT THRIFT INDUSTRY COSTS AND
CAPITAL
============================================================ Chapter 3

The potential premium rate differential between BIF and SAIF
discussed in chapter 2 is likely to have a significant impact on the
banking and thrift industries' costs and on their ability to attract
deposits and capital.  Reliable statistical estimates are not
available to predict banks' and thrifts' responses to a premium rate
differential.  However, the lower cost of insurance coverage could
motivate banks to increase interest rates paid on deposits and
improve customer services in order to compete more aggressively for
deposits.  Thrifts would likely incur additional costs in their
attempt to match bank actions and remain competitive with banks for
deposits. 

Banks' and thrifts' actions and the impact of those actions on thrift
industry earnings and capital will depend on the duration and amount
of the premium differential, which are subject to the uncertainties
discussed in chapter 2.  The cost increase thrifts are likely to
incur will represent a larger share of earnings for thrifts that
depend heavily on deposits for funding and have low earnings. 
Additionally, the high premium rates for thrifts could motivate them
to replace deposits with other nondeposit sources of funding in an
effort to reduce the costs associated with the premium rate
differential.  Such action could result in a further shrinkage in
SAIF's assessment base and could lead to higher insurance premium
rates charged by SAIF. 


   BANKS' AND THRIFTS' RESPONSE TO
   A PREMIUM DIFFERENTIAL IS
   UNCERTAIN
---------------------------------------------------------- Chapter 3:1

Predicting BIF and SAIF member responses to a reduction in BIF
premium rates cannot be done with a high degree of certainty because
reliable statistical estimates of the likely behavior do not exist. 
Consequently, when analyzing the potential effects of the premium
rate differential on the thrift and banking industries, it is
necessary to make assumptions regarding bank and thrift behavior. 

The fact that banks and thrifts compete in a wide market that
includes nondepository financial institutions contributes to the
uncertainties in predicting banks' responses to a decline in
insurance premium rates.  Competitive factors within the broader
financial marketplace could determine whether banks use their
reduction in insurance premiums to increase interest rates paid on
deposits and increase customer service.  Competition in the broader
marketplace could also impact the portion of savings from reduced
premiums that banks pass on to customers. 

If banks pass on all or part of their savings to customers, it is
likely that SAIF members will match bank actions in order to remain
competitive.  The borrowing and lending activities of SAIF members
have few unique characteristics in relation to BIF members that would
help them remain competitive without matching bank actions. 
Commercial banks compete with thrift institutions in local mortgage
origination markets and business lending, and both types of
institutions compete for customer deposits to fund their activities. 


   COST OF PREMIUM DIFFERENTIAL TO
   THRIFTS IS UNCERTAIN
---------------------------------------------------------- Chapter 3:2

The portion of the premium reduction that banks pass through to
depositors, as well as the extent of SAIF members' attempts to match
those actions, are both uncertain factors that will be significant in
determining the actual cost increase to SAIF members resulting from
the premium rate differential.  Thrifts could potentially reduce
these costs by replacing deposits with other nondeposit sources of
funding. 

If banks do not pass on the benefits of their lower premium expenses
to customers and instead use these benefits to directly increase
earnings, the cost increase to SAIF members from the premium
differential would be zero.\1 If banks pass 100 percent of their
reduction in insurance premiums through to their customers and SAIF
members fully match banks' actions, SAIF members would absorb 100
percent of the premium differential through their increased costs. 
Similarly, if banks pass 50 percent of their reduction in insurance
premiums through to their customers and SAIF members fully match
banks' actions, SAIF members would absorb 50 percent of the premium
differential through increased costs. 


--------------------
\1 This assumes that BIF members do not represent a large enough
share of investor capital in the financial marketplace to create a
general increase in the required rate of return investors demand for
investments in depositories. 


   IMPACT OF THRIFTS ABSORBING THE
   PREMIUM DIFFERENTIAL
---------------------------------------------------------- Chapter 3:3

If BIF members pass 50 percent of their savings associated with
FDIC's projected decline in premiums through to their customers and
SAIF members fully match those actions, the cost increase for SAIF
members on average would be about 4.8 percent of annual after-tax
earnings, assuming a 19.5 basis point premium differential.\2 The
cost increase to SAIF members would be double if BIF members pass 100
percent of their savings through to customers and SAIF members fully
match BIF-member actions. 

The cost increase as a percentage of earnings for individual SAIF
members depends on their profitability, as well as the extent to
which their assets are financed with assessable deposits.  The median
return on assets for SAIF members is about 100 basis points.  Most
SAIF-member assets are financed with 60 to 90 percent of assessable
deposits.  Under the 50-percent absorption assumption, the cost
increase for institutions with a return on assets of 100 basis points
varies from about 3.9 percent to 5.8 percent of annual after-tax
earnings, respectively.  These costs would be double under a
100-percent absorption scenario. 

Institutions with a return on assets of 50 basis points, or one-half
of the median return on assets, would face double the cost increase
as a share of earnings at each level of assessable deposits. 
Further, this scenario could cause institutions which would otherwise
have had low earnings to begin incurring losses.  The cost increase
associated with the premium rate differential would increase the
losses of institutions already experiencing losses.  Prolonged
periods of losses deplete institution capital and can eventually lead
to failure.  However, an institution's earnings can vary dramatically
over time.  Therefore, it is also important to consider an
institution's likely earnings over the time horizon of the premium
rate differential. 

Because the cost of the premium differential is also related to the
share of assets financed with assessable deposits, SAIF members are
likely to replace deposits with other funding sources, such as
Federal Home Loan Bank advances.  Therefore, some of the costs
referred to above could be mitigated somewhat if an institution
replaces deposits with other sources of funding.  However, in the
aggregate, the cushion provided by such substitution is limited
because eventually SAIF's premium rates would need to be increased in
response to declines in the portion of SAIF's assessment base
available to pay FICO in order to continue paying the FICO bond
interest. 


--------------------
\2 This calculation is for a SAIF member with a 100 basis point
return on assets with an assessment base equal to 75 percent of
assets.  Under a 50-percent absorption scenario, the above
institutions' return on assets would be reduced by 7.3 basis points
on a pre-tax basis (50 percent of the 19.5 basis point differential,
multiplied by the 0.75 ratio of assessment base to assets) and 4.8
basis points on an after-tax basis, assuming a corporate tax rate of
34 percent.  The 4.8 percent after-tax reduction to return on assets
represents 4.8 percent of earnings. 


   IMPACT ON TROUBLED INSTITUTIONS
   OVER TIME
---------------------------------------------------------- Chapter 3:4

Although the impact of the premium rate differential will be more
severe for institutions with low earnings and low capital, the impact
should be considered over the duration of the premium rate
differential.  Some SAIF members are likely to fail in their business
operations whether a premium disparity develops or not.  However,
institutions that are currently troubled could recover within a short
period of time, since national, regional, and local economic
fluctuations cause institutions to go through periods of earnings
fluctuations in which they experience relatively low earnings for a
number of years, followed by a subsequent recovery.  The existence of
a differential could make the climb back to recovery more difficult. 

For example, the state of California has experienced significant
declines in real estate prices over the past few years. 
Approximately 26 percent of all thrift industry assets are held in
California, and, in 1993, 78 of the 98 SAIF members in California had
a return on assets of less than 100 basis points.  It is possible
that some of these institutions could ultimately fail with or without
the introduction of a premium differential.  However, many of these
institutions could experience earnings growth if real estate values
rebound and asset quality subsequently improves. 


   IMPACT OF PREMIUM DIFFERENTIAL
   ON CAPITAL INVESTMENT IN
   SAIF-MEMBER INSTITUTIONS
---------------------------------------------------------- Chapter 3:5

The premium differential will reduce earnings for SAIF members. 
Also, the premium differential, as well as the expectation of a
future differential, will likely reduce capital investments in
SAIF-member institutions compared to the outcomes that otherwise
would result without the disparity.  Unfortunately, reliable
statistical estimates do not exist to predict how capital investments
in financial institutions will respond to changes in earnings. 
Furthermore, a number of other factors also affect capital investment
in financial institutions, including the term structure of interest
rates and the regulatory environment in which financial institutions
operate.  It should be noted, however, that the thrift industry as a
whole is currently well-capitalized, with a median equity capital
ratio in excess of 8 percent at September 30, 1994. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 3:6

The potential premium rate differential is likely to impact banks'
and thrifts' costs and their ability to attract deposits and capital. 
While predicting the response of banks and thrifts to the lowering of
premium rates for BIF members is subject to considerable
uncertainties, it is likely that banks will take at least some
advantage of their lower cost of insurance coverage to expand their
deposit base and capital by offering incentives to customers.  The
likely reaction by thrifts would be to match bank actions to retain
and compete for deposits.  The severity of the effect of such actions
on thrift earnings and capital is subject to the duration and size of
the premium differential but will generally be more severe for
thrifts already experiencing low earnings or losses and for thrifts
that rely heavily on deposits for funding.  Thrifts may also replace
deposits with other nondeposit sources of funding in an effort to
reduce their costs relative to banks, which would further decrease
SAIF's assessment base and could lead to a widening of the premium
differential. 


POLICY OPTIONS TO ADDRESS CONCERNS
RESULTING FROM A PREMIUM RATE
DIFFERENTIAL
============================================================ Chapter 4

Several policy options exist to prevent a premium rate differential
between BIF and SAIF members from occurring or to reduce the size and
duration of the projected differential.  If a premium rate
differential is prevented, many of the potential negative effects on
the thrift industry and SAIF discussed in chapters 2 and 3 could be
avoided.  Options that reduce the differential would likely cause the
potential effects on thrift institutions and SAIF to be less severe
than if a higher differential develops.  Some options also reduce or
eliminate the risks associated with a thinly capitalized fund and a
small assessment base.  Aside from the option of taking no action at
this time, most of the options in this chapter involve the shifting
of at least some costs to either BIF members or the taxpayer. 

Table 4.1 presents most of the policy options that are discussed
throughout this chapter.  These options assume the continued
servicing of the FICO interest obligation. 



                                      Table 4.1
                       
                           Policy Options and Related Costs

                         (Dollars in billions, present value)


             No        SAIF      No                             Use
             capital   provides  capital   BIF and     Use BIF  appropria  Use
             infusion  capital-  infusion  SAIF share  premium  ted funds  appropria
    No       --all     -all      --SAIF    FICO        s to     to         ted funds
    action\  members   members   members   proportion  fund     capitaliz  to fund
    a        pay FICO  pay FICO  pay FICO  ally        FICO     e SAIF     FICO
--  -------  --------  --------  --------  ----------  -------  ---------  ---------
Co  $13.8    $2.6      $7.9      $8.0      $7.9        $6.1     $7.7       $6.1
st
to
SA
IF

Co  $0       $11.2     $5.9      $5.8      $5.9        $7.7     $0         $0
st
to
BI
F

Co  No       $0        $0        $0        $0          $0       $6.1       $8.3
st  immedia
to  te cost
Tr
ea
su
ry

Ye  2002     1996      1995      1996      2000        1999     1995       1999
ar
of
SA
IF
ca
pi
ta
li
za
ti
on

Ye  1995     1996      1995      1996      1995        1997     1995       1995
ar
of
BI
F
re
ca
pi
ta
li
za
ti
on

Ri  High     Eliminat  Eliminat  High      Significan  Signifi  Reduced    Significa
sk           ed        ed                  tly         cantly              ntly
s                                          reduced     reduced             reduced
as
so
ci
at
ed
wi
th
pr
em
iu
m
di
ff
er
en
ti
al

Ri  High     Eliminat  Eliminat  Eliminat  Reduced     Reduced  Eliminate  Reduced
sk           ed        ed        ed                             d
s
as
so
ci
at
ed
wi
th
th
in
ly
ca
pi
ta
li
ze
d
fu
nd

Ri  High     Eliminat  Eliminat  High      Eliminated  Elimina  High       Eliminate
sk           ed        ed                              ted                 d
s
as
so
ci
at
ed
wi
th
sm
al
l
as
se
ss
me
nt
ba
se
------------------------------------------------------------------------------------
\a This column represents the effect on the various attributes (cost
to SAIF, cost to BIF, etc.) if BIF were to achieve the designated
reserve ratio in 1995 and FDIC were to lower BIF-member premiums as
outlined in the FDIC Board of Director's January 31, 1995, proposal,
which was published in the February 16, 1995, Federal Register. 


   TOTAL COST OF CAPITALIZING SAIF
   AND FUNDING THE FICO INTEREST
   EXPENSE
---------------------------------------------------------- Chapter 4:1

At December 31, 1995, we project the present value of the total cost
to increase SAIF's reserves to their 1.25 percent designated ratio to
insured deposits and to fund the FICO interest obligation, when
discounted at 8.60 percent,\2 to be $13.8 billion.  When discounted
at 7.55 percent,\3 the total cost increases to $14.4 billion.  Based
on FDIC's projections, SAIF would need additional capital of $6.1
billion to achieve its designated reserve ratio at the end of 1995. 
The present value of the total FICO interest obligation from 1996
through 2019 is approximately $7.7 billion using an 8.60-percent
discount rate and $8.3 billion using a 7.55- percent discount rate. 
\4

SAIF's fund balance at December 31, 1995, is projected by FDIC to be
$2.4 billion.  Based on FDIC's projections, this would represent a
ratio of reserves to estimated insured deposits of 0.35 percent at
year-end 1995.  SAIF would need an additional $6.1 billion in capital
at December 31, 1995, to reach its designated reserve ratio, for a
total capital base of $8.5 billion. 


--------------------
\2 8.60 percent is a private market rate equal to the yield on highly
rated corporate bonds as of year-end 1994. 

\3 7.55 percent is the rate equal to the yield on 30-year Treasury
bonds as of February 23, 1995. 

\4 The annual payments to FICO used for these estimates are based on
FICO's 1993 assessment of SAIF members, which was $779 million. 
Although FICO's actual interest expense in 1993 was $793 million,
SAIF was only assessed $779 million due to the fact that FICO uses
the interest it earns on its cash balances toward its bond interest
expense.  Therefore, the amount paid by SAIF each year for the FICO
obligation may vary slightly depending on FICO's annual interest
earnings. 


   RISKS ASSOCIATED WITH NO ACTION
---------------------------------------------------------- Chapter 4:2

If no action is taken, and FDIC lowers BIF-member premiums after the
Fund reaches its designated reserve ratio in 1995, several
significant risks for SAIF's long-term outlook exist which could
result in the need for future use of appropriated funds.  These risks
are interrelated and could result in premium rates increasing to a
level which cannot be sustained by SAIF members, thereby calling into
question SAIF's long-term viability and its ability to service its
members' long-term FICO obligation. 

A thinly capitalized SAIF leaves the Fund at risk that it does not
have sufficient capital to withstand significant fluctuations in the
assumptions of future failures used in FDIC's projections,
particularly over the next several years. 

As discussed in chapters 2 and 3, a premium rate differential carries
the risks that SAIF members will have difficulty competing with BIF
members and attracting capital, possibly leading to additional
shrinkage in SAIF's assessment base.  This is particularly true if
future servicing of the FICO interest obligation after SAIF's
capitalization is a factor considered by FDIC in setting SAIF's
future premium rates. 

According to FDIC's projections, the annual FICO interest expense
currently represents about 16 basis points in relation to the portion
of SAIF's assessment base available to pay FICO.  FDIC is currently
projecting an annual shrinkage of 2 percent in the portion of SAIF's
deposit base available to pay FICO bond interest, which will make the
FICO obligation more expensive in relation to the assessment base. 
According to FDIC's projections, the FICO obligation will require 19
basis points at the time of SAIF's capitalization and increase to
23.5 basis points in the year 2012.  However, as discussed in
chapters 2 and 3, SAIF's future levels of assessment base shrinkage
is extremely uncertain and could be greater than projected.  Greater
than projected shrinkage in the portion of SAIF's assessment base
available to pay FICO would increase the risk that SAIF members would
be unable to service the annual FICO interest obligation without FDIC
further increasing premiums above SAIF's currently projected rates. 


   OPTIONS NOT REQUIRING USE OF
   APPROPRIATED FUNDS
---------------------------------------------------------- Chapter 4:3

Several options exist to prevent a premium rate differential and its
potentially adverse effects from occurring or to reduce the size and
duration of the projected differential.  The Congress could pass
legislation to merge BIF and SAIF into one combined deposit insurance
fund, thereby providing a broad assessment base and diversification
of risk.  Within a merger scenario, several options exist for
handling the costs associated with SAIF's capital needs and the fixed
FICO obligation.  Other options exist which involve a continuation of
separate insurance funds for the banking and thrift industries. 
However, each option has different outcomes, and some options carry
more risk and uncertainty than others. 

Arguments have been made that any option that involves the banking
industry contributing to service the FICO interest obligation is
unfair to the industry.  These arguments contend that the FICO
obligation was incurred during the thrift crisis of the 1980s and, as
such, is an obligation of the thrift industry.  However, there are
also arguments that those thrift institutions that comprise today's
thrift industry still exist because they are healthy, well-managed
institutions that avoided the mistakes made by many thrifts in the
1970s and 1980s that ultimately led to the thrift debacle.  As such,
they argue, they should be no more responsible for the FICO interest
burden than the banking industry.  The options discussed in the
remainder of this chapter do not attempt to judge the merits of
either side of this issue.  Rather, they simply attempt to present
how various approaches to dealing with the premium rate differential
will impact banking and thrift institutions and eliminate or reduce
the risks discussed throughout this report. 


      MERGE BIF AND SAIF TO FORM
      ONE DEPOSIT INSURANCE FUND
-------------------------------------------------------- Chapter 4:3.1

An option available to the Congress is to pass legislation which
would merge BIF and SAIF into one combined deposit insurance fund.  A
merger would provide a large assessment base and diversification of
risk, thereby eliminating the current risks associated with a thinly
capitalized SAIF.  Within a merger scenario, several options exist
for dealing with the FICO obligation and SAIF's capitalization.  The
following scenarios assume a merger on January 1, 1996. 


         SPREAD FICO EXPENSE AND
         COMBINED FUND'S COSTS
         AMONG ALL MEMBERS
------------------------------------------------------ Chapter 4:3.1.1

The Congress could pass legislation to merge BIF and SAIF into a
combined deposit insurance fund on January 1, 1996, with each fund
bringing into the combined fund their current level of reserves.  If
BIF and SAIF are combined without first capitalizing SAIF, and all
members of the combined fund continue to pay premiums at the current
average annual rate of 23 to 24 basis points until the combined fund
reaches the designated reserve ratio, the combined fund would be
capitalized in mid-1996.  This would be 1 year later than BIF's
current projected recapitalization in 1995 and 6 years earlier than
SAIF's currently projected capitalization in 2002.  Once the combined
fund is capitalized, premium rates for the combined fund members
could be lowered and would average approximately 6 to 7 basis points
annually.  This rate would be sufficient to service the annual FICO
interest obligation and would be about 2 basis points higher than the
future premium rate of 4 to 5 basis points FDIC currently projects
for BIF members once BIF attains its designated reserve ratio. 

Under this scenario, no premium rate differential would develop, and
therefore, the risks associated with a rate differential would be
eliminated.  The risks associated with a small assessment base would
also be eliminated since the FICO obligation would be spread over the
combined base.  BIF members would, in effect, provide most of the
initial capital infusion and pay a portion of the FICO obligation. 
Assuming that the FICO obligation is spread proportionally between
the BIF and SAIF assessment bases and that the bases grow at equal
rates after the merger, the present value of the additional premiums
BIF members would pay under this scenario would be approximately
$11.2 billion. 


         SAIF MEMBERS CAPITALIZE
         SAIF PRIOR TO COMBINING
         FUNDS
------------------------------------------------------ Chapter 4:3.1.2

The Congress could pass legislation to merge BIF and SAIF into a
combined deposit insurance fund but require that both BIF and SAIF be
adequately capitalized prior to the merger.  Under this scenario,
FDIC could assess SAIF members a special assessment to bring SAIF's
reserves up to the designated reserve ratio before merging the two
funds.  SAIF's reserves could be raised to a ratio of reserves to
insured deposits of 1.25 percent by FDIC charging a one-time
assessment of approximately 84 basis points on the Fund's assessment
base in 1995, prior to merging the funds. 

A merger under this scenario would allow BIF to recapitalize in 1995,
as currently projected.  BIF-member premiums could then be reduced
from their current level on schedule with FDIC's current projections. 
The new premium rates charged to the combined fund members would
average approximately 6 to 7 basis points annually.  These rates
would be sufficient to service the annual FICO interest obligation
and would be about 2 basis points higher than the future annual
premium rates of 4 to 5 basis points currently projected for BIF
members. 

Under this scenario, the risks associated with a premium differential
and a thinly capitalized fund would be eliminated.  Additionally, the
risks associated with a small assessment base would be eliminated,
since the FICO obligation would be spread over the combined base. 
SAIF members would provide the necessary infusion of capital, and BIF
members would pay a share of the FICO obligation.  Assuming equal
growth rates among all fund members after the merger, the present
value of the additional premiums BIF members would pay under this
scenario would be approximately $5.9 billion. 

An 84 basis point special assessment to capitalize SAIF would pose
some risks to the industry.  Specifically, SAIF members and other
institutions with SAIF-insured deposits would be forced to contribute
$6.1 billion more to SAIF in 1995 than currently projected to bring
sufficient capital into the combined fund.  Clearly, this is a
significant cost to these institutions.  Even for profitable
institutions, the special assessment could result in losses and a
reduction in capital in the year of the assessment.  Few institutions
that are currently meeting capital requirements would not meet these
requirements as a result of the special assessment.  However, for
some institutions with both low earnings or losses and low capital
that are identified as troubled by the regulators, the special
assessment could accelerate their failure.  The impact of the special
assessment on thrifts could be minimized by spreading the special
assessment over several years. 

However, the risks to the thrift industry under this option are not
as great as those associated with the premium rate differential
indicated in FDIC's current projections, assuming the prolonged
duration of this differential to service the annual FICO interest
obligation through 2019.  This special assessment would be a one-time
cost increase to SAIF members, after which their rates would decline
significantly and would be the same as those charged to BIF members. 
Overall, the one-time assessment of 84 basis points, combined with a
merger of the funds, would carry significantly less risk than the
currently projected rate differential extended through the duration
of the FICO interest obligation, since the cost to SAIF members would
be less than the cost SAIF members would otherwise incur if they were
required to capitalize SAIF and fund the entire FICO obligation. 
Additionally, a future premium rate differential would be eliminated. 


         FORMER SAIF MEMBERS
         CONTINUE TO SERVICE
         COMBINED FUND'S FICO
         OBLIGATION
------------------------------------------------------ Chapter 4:3.1.3

The Congress could also pass legislation to merge BIF and SAIF into a
combined deposit insurance fund with all members contributing to
capitalize the fund but require the former SAIF members to retain
responsibility for servicing the annual FICO interest obligation. 
Under this scenario, BIF and SAIF are combined without first
capitalizing SAIF.  All members of the combined fund would continue
to pay premiums at the current average annual rate of 23 to 24 basis
points until the combined fund achieves a ratio of reserves to
insured deposits of 1.25 percent in 1996.  Premium rates would then
decline for both former BIF and SAIF members from their current
level; however, premium rates for the former SAIF members would only
decline slightly if their rates are set at a level sufficient to pay
the FICO obligation. 

Under this scenario, a premium rate differential would still develop
after the combined fund is capitalized because former SAIF members
would still be responsible for servicing the FICO interest
obligation.  BIF members would, in effect, provide a substantial
portion of the capital infusion needed to capitalize the combined
fund and the cushion against exposure to future financial institution
failures.  BIF members would pay approximately $5.8 billion more in
premiums to cover the capital infusion.  It is also possible that the
combined fund would incur higher than projected costs in the future
if the former SAIF members are negatively impacted by the premium
differential that would still develop under this scenario. 

If this approach were employed, the risks associated with a small
assessment base would not change, since the former SAIF members would
still retain responsibility for the FICO obligation.  However, the
risks associated with a thinly capitalized fund would be eliminated,
since the combined fund would be capitalized and better able to
withstand insurance losses than an undercapitalized SAIF.  The risks
associated with the premium differential would probably not change as
continued servicing of the FICO obligation would continue to result
in a significant premium differential. 


      OPTIONS NOT REQUIRING A
      MERGER
-------------------------------------------------------- Chapter 4:3.2

Several options exist for maintaining BIF and SAIF as separate funds,
while avoiding the immediate use of appropriated funds.  The Congress
could require that BIF members fund a portion of the FICO obligation,
thereby reducing the size and the duration of the projected premium
rate differential.  FDIC could reduce SAIF's premiums before the Fund
capitalizes, thereby extending the time frame in which SAIF becomes
fully capitalized but reducing the size of the premium rate
differential currently projected through the year 2002.  The Congress
could also make all SAIF resources available to service the FICO
obligation. 


         BIF AND SAIF MEMBERS
         SERVICE THE FICO
         OBLIGATION
------------------------------------------------------ Chapter 4:3.2.1

As discussed previously, servicing the interest on the FICO bonds
represents a substantial cost for the portion of SAIF's assessment
base responsible for paying FICO.  This creates the potential for a
significant premium rate differential even with a fully capitalized
insurance fund.  To eliminate this situation and place thrifts on an
equal competitive footing with banks, the Congress could pass
legislation requiring BIF members to share the cost of servicing the
FICO obligation with SAIF members beginning in 1996.  Under this
option, if BIF and SAIF members shared the FICO obligation
proportionally based on their projected 1995 assessment bases, BIF
members would fund 77 percent of the FICO obligation and SAIF members
would fund the remaining 23 percent, eliminating the risks associated
with a small assessment base servicing the FICO obligation.  BIF
would still attain its designated reserve ratio in 1995 as currently
projected; however, SAIF would capitalize in the year 2000, 2 years
earlier than currently projected by FDIC.\5

After capitalization, SAIF's projected premium rates could be lowered
to a level comparable with BIF's, thereby significantly reducing the
risks associated with the premium differential. 

Under this scenario, a significant premium rate differential would
still exist until the year 2000, when SAIF capitalizes.  The present
value of the additional premium cost to BIF members under this
scenario would be approximately $5.9 billion.  SAIF members would
still be required to capitalize SAIF and would fund their
proportionate share of the FICO obligation.  The present value of
SAIF members' cost under this scenario would be approximately $7.9
billion. 


--------------------
\5 This estimate assumes that institution failure and loss rates used
in FDIC's SAIF projections would hold true.  This estimate also
assumes that SAIF members would experience growth in deposits and
assets equal to BIF members due to the fact that both funds would be
sharing the FICO burden proportionately. 


         BIF MEMBERS SERVICE THE
         FICO OBLIGATION
------------------------------------------------------ Chapter 4:3.2.2

Given the relative capital positions of the two insurance funds and
the risks associated with a prolonged period of a significant premium
rate differential, another option would be for the Congress to pass
legislation requiring BIF to raise sufficient funds to pay the FICO
obligation.  If FDIC maintained BIF's premium rate at the current
annual average of 23 basis points through early 1997, sufficient
funds would be raised to pay the FICO obligation on a present value
basis, assuming a discount rate of 8.6 percent.  BIF members would
pay approximately $7.7 billion more in premiums than currently
projected by FDIC. 

Under this scenario, BIF premiums would not be reduced until 1997. 
Additionally, SAIF would reach its designated reserve ratio in 1999,
3 years earlier than currently projected by FDIC.  With SAIF's
earlier capitalization, the risks associated with a thinly
capitalized fund would be reduced.  After SAIF's capitalization, its
premium rates would be comparable to BIF's.  Because SAIF's members
would, in effect, be relieved from the FICO interest obligation, the
risks associated with a small assessment base paying the fixed FICO
interest obligation would be eliminated. 


         LOWER SAIF PREMIUMS
         BEFORE SAIF IS
         CAPITALIZED
------------------------------------------------------ Chapter 4:3.2.3

Under current law, FDIC has the option of lowering SAIF premiums
prior to SAIF's capitalization.  FDIC's Board of Directors has the
authority to lower SAIF premiums to an average annual rate of 18
basis points until January 1, 1998, after which the average rate must
remain at 23 basis points or higher until the Fund is capitalized. 
Reducing the average annual rate to 18 basis points is presently
projected to delay SAIF's capitalization for 2 years, until 2004. 
Although this option would slightly reduce the size of the projected
premium rate differential, it does little to address the risks
associated with a prolonged premium rate differential.  This option
would also increase the risks associated with a thinly capitalized
fund, since SAIF's capitalization would be delayed until the year
2004 and remain vulnerable to any increases in thrift failures. 


         ALL SAIF RESOURCES
         AVAILABLE TO SERVICE FICO
         OBLIGATION
------------------------------------------------------ Chapter 4:3.2.4

As discussed earlier, SAIF's inability to use assessments collected
from Oakar and Sasser institutions to help fund FICO interest
payments is a significant limitation on its ability to service the
industry's FICO obligation.  Currently, a significant and growing
portion of SAIF's assessment base is not available for this purpose. 
The Congress could modify current law to specify that all SAIF
assessments, including assessments paid by Oakar and Sasser
institutions, are available to service the FICO obligation.  This
action could help SAIF meet future FICO payments without a need to
maintain premiums at the current rate beyond the date SAIF attains
its designated reserve ratio.  However, the risks associated with a
thinly capitalized fund over the next several years would not be
eliminated.  Additionally, the risks associated with the projected
premium rate differential would also not be eliminated, as the annual
FICO interest obligation would still represent a significant
additional cost in SAIF's premium rates that would not be present in
BIF's premium rates. 

As discussed in chapter 2, if that portion of SAIF's assessment base
available to pay the FICO obligation declines beyond FDIC's current
projections, it is possible that SAIF would need to charge
higher-than-projected premium rates in the years following its
capitalization.  These higher premium rates would increase the size
of the premium differential and the potential for negative effects on
SAIF-insured institutions and SAIF. 

If this were the only action taken, a premium rate differential would
not be avoided or reduced.  Consequently, the potential negative
effects for SAIF-insured institutions and SAIF discussed in chapters
2 and 3 would not be avoided or mitigated. 


   OPTIONS USING APPROPRIATED
   FUNDS
---------------------------------------------------------- Chapter 4:4

The options discussed previously to deal with the funding concerns
for SAIF and the thrift industry's long-term FICO obligation require
significant cost to be borne by banks, thrifts, or a combination of
both industries.  Alternatively, other options are available that
shift this burden to the Treasury and, ultimately, the taxpayers. 
The Congress could provide SAIF with new funding as a source of
capital and as a means to pay the FICO obligation.  Another option is
to make the funds previously appropriated or the funds authorized,
but not appropriated, available for these purposes.  Each of these
funding options would require legislation and would be subject to
budget scorekeeping procedures.\6


--------------------
\6 Scorekeeping is the process of estimating the budgetary effects of
proposed and enacted legislation and comparing them to limits set in
the budget resolution or legislation. 


      AUTHORIZE AND APPROPRIATE
      NEW FUNDING
-------------------------------------------------------- Chapter 4:4.1

The Congress could appropriate funds to SAIF as a source of capital
and as a means to pay the FICO obligation.  As discussed earlier,
SAIF would require approximately $14.4 billion at the end of 1995 in
order to reach its reserve ratio and fund its future FICO obligation,
using a discount rate of 7.55 percent. 


      REMOVE THE RESTRICTIONS ON
      AVAILABILITY OF LOSS FUNDING
      ALREADY APPROPRIATED FOR RTC
-------------------------------------------------------- Chapter 4:4.2

The Resolution Trust Corporation Refinancing, Restructuring, and
Improvement Act of 1991 (Public Law 102-233) provided RTC with $25
billion in December 1991 to fund resolution activity.  However, these
funds were only available for obligation until April 1, 1992.  On
that date, RTC returned $18.3 billion of unobligated funds to the
Treasury.  In December 1993, the RTC Completion Act removed the April
1, 1992, deadline, thus making the $18.3 billion available to RTC for
completion of its resolution activities.  The RTC Completion Act also
makes any unused RTC funding available during the 2-year period
beginning on the date of its termination to SAIF for insurance
losses.  As of December 31, 1993, RTC's audited financial statements
showed that RTC could have $13 billion in unused loss funds after
resolving all institutions for which it is responsible.\7

SAIF's use of RTC funding is subject to significant restrictions. 
Before these funds can be used, FDIC must certify to the Congress,
among other things, that (1) SAIF-insured institutions are unable to
pay premiums sufficient to cover insurance losses without adversely
affecting their ability to raise and maintain capital or to maintain
the assessment base, and (2) an increase in premiums could reasonably
be expected to result in greater losses to the government. 

The Congress could pass legislation removing the restrictions on
SAIF's use of RTC funding and make the funds available to capitalize
SAIF and to pay the FICO obligation.  Based on the estimates
presented in RTC's December 31, 1993, audited financial statements,
it appears that significant funding may be available to both
capitalize SAIF and fund a substantial portion of the FICO
obligation. 

If this funding were made available at the end of 1995, SAIF would
need approximately $6.1 billion to reach its designated reserve
ratio, as well as $8.3 billion on a present value basis to cover the
future FICO obligation.  Because some uncertainty exists regarding
RTC's final loss funding needs, the Congress could withhold a portion
of the RTC funding for possible future use by RTC until it is either
used by RTC, or it becomes fairly certain that RTC will not need the
funding. 

If the RTC funding were used as a capital infusion and as a mechanism
for funding a substantial portion of the FICO obligation, the premium
differential would be significantly reduced.  Therefore, the risk of
negative effects on SAIF members and SAIF resulting from the
differential would also be substantially reduced.  The capital
infusion would provide SAIF with a cushion against future losses, and
the risks associated with a thinly capitalized fund would be
eliminated. 


--------------------
\7 The estimated $13 billion of unused loss funds is dependent on
RTC's ability to recover amounts currently estimated to be
collectible from receiverships and future resolutions.  Therefore,
the amount of unused loss funds available could be higher or lower,
depending on RTC's actual recoveries. 


      REMOVE THE RESTRICTIONS ON
      FUNDING ALREADY AUTHORIZED
      FOR SAIF
-------------------------------------------------------- Chapter 4:4.3

The FDI Act, as amended by FIRREA and by the RTC Refinancing,
Restructuring, and Improvement Act of 1991, authorized Treasury to
provide funding to SAIF each fiscal year from 1993 to 2000 to the
extent that the SAIF member assessments deposited in the Fund did not
total $2 billion a year.  Additionally, Treasury was authorized to
make annual payments necessary to ensure that SAIF had a specific net
worth, ranging from zero during fiscal year 1992 to $8.8 billion
during fiscal year 2000.  The cumulative amounts of these payments
were not to exceed $16 billion.  However, while the FDI Act, as
amended, authorized the appropriation of funds to the Secretary of
the Treasury, such funds were not actually appropriated.  These
funding provisions were later amended by the RTC Completion Act. 
That act authorized up to $8 billion for SAIF's insurance losses
incurred in fiscal years 1994 through 1998 and placed restrictions on
the availability of these funds similar to the restrictions on the
availability of RTC funding. 

The Congress could pass legislation removing the restrictions on this
funding source and appropriate the funds to aid in capitalizing SAIF
and funding the FICO obligation.  The $8 billion authorized would not
be sufficient to both capitalize SAIF and completely fund the FICO
obligation.  However, it would be sufficient to capitalize SAIF and
fund about one-fourth of the FICO obligation.  If this funding were
authorized and appropriated for these purposes, SAIF would be
capitalized when the funds are received. 

Providing this funding to SAIF would result in SAIF's capitalization,
and would have the overall effect of a capital infusion.  SAIF would
also be relieved of a significant portion of the future FICO
obligation.  Under this approach, the premium differential after
capitalization would be reduced.  Alternatively, another option using
these funds would be to fund the FICO obligation and let SAIF members
continue to fund the cost of capitalizing SAIF as well as paying for
the small portion of the FICO obligation not covered by these funds. 
Under this option, SAIF members would continue to pay higher premiums
than their BIF counterparts for 4 years, and the Fund would be
capitalized in 1999. 

Some uncertainties are associated with these options, since a premium
differential would exist, although its size and duration would be
subject to how these funds would be applied.  However, the risks
associated with the differential would be significantly reduced as a
result of reducing either the size or duration of the differential. 




(See figure in printed edition.)Appendix I
COMMENTS FROM THE FEDERAL DEPOSIT
INSURANCE CORPORATION
============================================================ Chapter 4



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Federal Deposit Insurance
Corporation's letter dated February 22, 1995. 


   GAO COMMENTS
---------------------------------------------------------- Chapter 4:5

1.  FDIC's technical comments on the draft report were incorporated
in the final report as appropriate. 

2.  We agree with FDIC that the statutory provisions listed are
important provisions of law that govern FDIC's setting of deposit
insurance premiums.  These provisions are discussed as appropriate
throughout our report. 

3.  See chapter 2 for our discussion of the timing and duration of a
premium rate differential between banks and thrifts. 

4.  We agree with FDIC that the policy options discussed in chapter
4, except for FDIC's limited authority to reduce SAIF's premiums
until January 1, 1998, would require legislation. 

5.  See chapter 2 for our discussion of the payment of FICO bond
interest. 

6.  As FDIC acknowledges, there will be a substantial premium
disparity between banks and thrifts that will likely continue for
some time if FDIC lowers premiums for banks when the Bank Insurance
Fund recapitalizes in 1995.  SAIF is thinly capitalized and its
deposit base is shrinking while a substantial long-term obligation to
pay FICO bond interest exists.  While analyses of the effects of
these conditions are subject to inherent uncertainty, the conditions
are facts that present substantial risk to the thrift industry and
SAIF. 

7.  See chapter 3 for our discussion and illustration of how a
premium rate differential will impact thrift industry costs and
capital.  We would note that, while a substantial increase in BIF
acquisitions of thrifts could mitigate the decline in SAIF's total
assessment base, such an increase would result in a further shrinkage
of the portion of SAIF's assessment base available to service the
FICO obligation. 

8.  See chapter 2 for our analysis regarding asset failure rates and
loss assumptions affecting the timing of SAIF's capitalization. 

9.  See chapter 2 for our analysis of deposit base changes and their
affect on SAIF members' ability to pay FICO interest. 




(See figure in printed edition.)Appendix II
COMMENTS FROM THE OFFICE OF THRIFT
SUPERVISION
============================================================ Chapter 4



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Office of Thrift
Supervision's letter dated February 23, 1995. 


   GAO COMMENTS
---------------------------------------------------------- Chapter 4:6

1.  See chapter 2 for our discussion of the usefulness of public
hearings to discuss the implications associated with a premium rate
differential. 

2.  See chapter 2 for our analyses regarding asset failure rate and
loss rate assumptions affecting the timing of SAIF's capitalization
and our analysis of the impact of deposit base changes on SAIF
members' ability to pay FICO bond interest. 

3.  See chapter 2 for our discussion of FDIC's asset failure and loss
rate assumptions and actual and projected deposit base changes. 

4.  See chapter 2 for our discussion of SAIF's current capital
position. 

5.  See chapter 4 for our analysis of several policy options
available to address concerns resulting from a premium rate
differential. 




(See figure in printed edition.)Appendix III
COMMENTS FROM THE DEPARTMENT OF
THE TREASURY
============================================================ Chapter 4



(See figure in printed edition.)


The following are GAO's comments on the Department of the Treasury's
letter dated February 23, 1995. 


   GAO COMMENTS
---------------------------------------------------------- Chapter 4:7

1.  The Department of the Treasury's technical comments on the draft
report were incorporated in the final report as appropriate. 

2.  See chapter 2 for our discussion of the concentration of SAIF's
insured deposits and the effect of higher than projected thrift
failures on SAIF's ability to attain its designated reserve ratio. 

3.  See chapter 3 for our discussion of the effect of a premium rate
differential on the thrift industry's costs and ability to attract
capital and its effect on institutions with low earnings and low
capital. 

4.  See chapter 2 for our discussion of the effects that shrinkage in
the portion of SAIF's assessment base available to pay FICO have on
the ability to service FICO bond interest. 

5.  As discussed in chapter 4, while modifying current law to require
all SAIF assessments be available to service the FICO interest
obligation could help SAIF meet future FICO payments without a need
to maintain premiums at their current rate once SAIF is fully
capitalized, the risks associated with a thinly capitalized fund and
a premium rate differential would not be eliminated. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV


   ACCOUNTING AND INFORMATION
   MANAGEMENT DIVISION,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix IV:1

Steven J.  Sebastian, Assistant Director
Jeanette M.  Franzel, Audit Manager
Lynda E.  Downing, Auditor
Bonnie L.  Lane, Auditor


   GENERAL GOVERNMENT DIVISION,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix IV:2

William B.  Shear, Assistant Director


   OFFICE OF THE GENERAL COUNSEL
-------------------------------------------------------- Appendix IV:3

Helen T.  Desaulniers, Attorney


*** End of document. ***