SUMMARY OF THE DEPOSIT INSURANCE FUNDS PROTECTION ACT OF 1990.

SUMMARY:

H.R. 5610 amends the Federal Deposit Insurance Act to remove the caps imposed on deposit insurance premiums and annual premium increases and to allow the FDIC to adjust assessment rates more frequently than annually.

BACKGROUND

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) created two insurance funds: the Bank Insurance Fund (BIF) which insures banks, and the Savings Association Insurance Fund (SAIF) which insures savings associations. Under current law, there is a schedule of annual assessment rates or premiums for BIF and SAIF members. The scheduled rate for 1991 is 0.15 percent for banks, i.e. 15 cents per $100 insured, and 0.23 percent for savings associations. Under FIRREA, the premiums can be increased above the scheduled rates only if (1) the actual reserve ratio is less than the designated reserve ratio; (2) the actual reserve ratio is decreasing; (3) the rate is no higher than 0.325 percent; and (4) the increase in any 1 year is not greater than 0.075 percent.

Under FIRREA, the designated reserve ratio is 1.25 percent, i.e. $1.25 for each $100 covered, but can be raised up to 1.50 percent if the FDIC determines such an increase is justified by circumstances that raise a "significant risk of substantial future losses" to the insurance funds. The Bank Insurance Fund reserve ratio is currently 0.60, i.e. 60 cents for each $100 insured. Consequently, the FDIC recently announced that insurance premiums for banks for 1991 will be 19.5 cents per each $100 insured. This represents the maximum increase allowable under current law.

Under current law, premium rates can be changed not more than once a year and the new rates must be announced by September 30 of the preceding year.

H.R. 5610

SECTION BY SECTION

SECTION 1. SHORT TITLE.

The short title of the bill is the "Deposit Insurance Funds Protection Act of 1990."

SECTION 2. ELIMINATION OF CEILING ON INSURANCE PREMIUMS AND ANNUAL PREMIUM INCREASES.

Section 2(a) amends the Federal Deposit Insurance Act to permit the Board of Directors of the Federal Deposit Insurance Corporation to set premiums for Bank Insurance Fund (BIF) members at a rate determined by the Board to be appropriate to increase the actual reserve ratio of the BIF to the designated reserve ratio after taking into consideration the expected operating expenses, case resolution expenditures, and investment income of the insurance fund, and the impact of the rates on insured bank earnings and capitalization.

Section 2(b) makes the same amendment with respect to premium rates for members of the Savings Association Insurance Fund.

SECTION 3. FDIC AUTHORITY TO ADJUST ASSESSMENT RATES MORE FREQUENTLY THAN ANNUALLY.

Section 3(a) amends the Federal Deposit Insurance Act to allow the FDIC to set assessment rates at such times as the FDIC determines to be appropriate. Rate changes must be publicly announced at least 60 days before the change becomes effective.

SECTION 4. TECHNICAL AND CONFORMING AMENDMENTS

Technical and conforming amendments are made to various subsections of section 7 of the Federal Deposit Insurance Act to reflect the fact that (a) rates may be changed on a more frequent basis and (b) that assessment credits can be announced within 60 days of the semiannual period for which they will be credited.