FDIC DEPOSIT INSURANCE ASSESSMENTS

FIL-86-99 September 15, 1999

TO: CHIEF EXECUTIVE OFFICER

SUBJECT: Proposed Revisions to Assessment Regulation (Part 327 of FDIC's Rules and Regulations)

The FDIC Board of Directors has proposed the attached revisions to the FDIC's regulation governing deposit insurance assessments and is seeking comment on the proposal.

The Board believes the proposed changes will enhance the present system by allowing institutions with improving capital positions to benefit from the improvement more quickly, while requiring those whose capital is falling to pay a higher assessment sooner. Comments on the proposal are due by October 25, 1999.

Specifically, the Board is proposing that the FDIC's assessment regulation (Part 327) be amended to:

- base capital group determinations under the FDIC's risk-based assessment system on Call Report data for the quarter ending three months before the beginning of the assessment period, instead of six months as at present;

- shorten the required notification period from 30 days to 15 days prior to each assessment period's payment date;

- increase from 30 days to 90 days the time in which an institution may request a review of its assessment risk classification; and

- recognize administrative changes internal to the FDIC that have already taken place.

For more information, please contact James W. Thornton, Senior Banking Analyst in the Division of Insurance (DOI), at (202) 898-6707 or Richard Jones, Chief of DOI's Assessments Implementation Section, at (202) 898-6592.

Arthur J. Murton - Director http://www.fdic.gov/news/news/financial/1999/fil9986.html

============================================================

BANK FAILURES TAPPING FDIC FUND Tuesday October 12, 1999 - By MARCY GORDON AP Business Writer

WASHINGTON (AP) -- The Federal Deposit Insurance Corp. says bank failures this year are expected to generate the insurance fund's biggest losses since the regional banking crises of the early 1990s ...

``You'd have to go back to the early 1990s to find a time the insurance fund has taken this kind of a hit in any one year,'' FDIC spokesman David Barr said Tuesday ...

The banking debacle was not nearly as severe, however, as the savings and loan crisis of the same period, in which lax lending policies eventually forced a government bailout of hundreds of billions of dollars ...

http://biz.yahoo.com/apf/991012/fdic_bank__1.html

============================================================

FDIC SECOND-IN-COMMAND ABRUPTLY RESIGNS - From internal FDIC memo

From: Global Messenger Sent: Thursday, September 30, 1999 3:05 PM To: FDIC EMPLOYEES CORPORATE Subject: Message from the Chairman

September 30, 1999

TO: All FDIC Employees FROM: Donna A. Tanoue SUBJECT: Management and Organizational Changes

"Deputy to the Chairman and Chief Operating Officer Dennis F. Geer recently advised me of his intention to retire on September 30, 1999" ... [No future plans by Greer indicated.] http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=001V85

============================================================

You know I've been reading alot about FDIC lately ... who keeps on giving us warm fuzzy messages about how everything is Y2K-OK.

But, I don't hear/see much from/about FSLIC ... Is FSLIC a part of FDIC?? I thought they were two different things. What's the deal? Why don't we hear about/from them? Anyone know?

-- Cheryl (Transplant@Oregon.com), October 16, 1999

Answers

Cheryl, if I recall the last banking crisis correctly, the FSLIC got swallowed up by FDIC when the savings&loan insurance fund went belly up. Nobody thought the crisis was as bad as it was until the fund was bankrupt, and it was too late to raise assessments on the remaining S&Ls (which by that time were essentially bankrupt, also).

FDIC basing its assessment (insurance fund premiums) on capital levels after 3 months vs 6 months is probably a good thing, because the FDIC may act faster to protect the insurance fund from a failing bank. I wouldn't be surprised to hear about banks jimmying their capital ratios to avoid increases in their assessments. FDIC examiners are probably looking for that, however.

-- Margaret J (janssm@aol.com), October 16, 1999.

Cheryl,

I think Margaret is correct. I understood FSLIC had been taken over by FDIC.

Have you heard anything interesting from your old contacts in the oil industry? Your story last summer about meeting Ron Quiggins from Shell and the Amoco fellow was quite insightful hoped you might have heard more since June.

-- R.C. (racambab@mailcity.com), October 16, 1999.

I requested an account balance on my master savings account at Bank of America and at the bottom of the receipt was a statement that the account was insured by FDIC only up to $ 1,000.

Anyone else finding interesting statements at the bottom of their bank receipts?

Monday, I will move our account to another bank.

-- Leslie (***@***.net), October 16, 1999.

Margaret J.

<the FSLIC got swallowed up by FDIC when the savings&loan insurance fund went belly up>

Thanks for clarifying that. I forgot. I never had money in a S&L. Just remember seeing so many horror stories on TV, way back when.

GEE - Wasn't long ago. Only about 10-12 yrs. My how time flies when you're having a good time.

<FDIC basing its assessment (insurance fund premiums) on capital levels after 3 months vs 6 months is probably a good thing, because the FDIC may act faster to protect the insurance fund from a failing bank.>

I agree.

But, at the same time ... these MEGA mergers ... have created HUGE entities ... that the FDIC may not be able to be bail out. Especially with this whole derivative mess. This is what worries me.

Plus there are a lot of "investment opportunities" that banks and S&L's have been offering that are NOT insured by the FDIC. And many don't realize that.

FROM FDIC:

Depository institutions (banks and thrifts) have traditionally offered consumers deposit products, such as checking, savings and money market deposit accounts, and certificates of deposit (CDs) for which each depositor is insured by the FDIC up to $100,000.

Increasingly, these institutions are also offering consumers a broad array of investment products that are not deposits, such as mutual funds, annuities, life insurance policies, stocks and bonds. Unlike the traditional checking or savings account, however, these nondeposit investment products are not insured by the FDIC. http://www.fdic.gov/deposit/investments/investments/index.html#traditi onal

Back then, during this whole fiasco, my parents had a large annuity. The company filed for bankruptcy. My parents were terrified. They thought they lost the whole thing. They eventually got their principal back. It took several few years though.

I hope anyone reading this makes sure that what they've invested thru a bank or S&L is insured by FDIC. If they're willing to take the risk and not be FDIC insured - fine. But, if not sure ... check it out!!!

But, I'm still worried about the ability of the FDIC to cover all potential failures.

Does anyone recall if everyone who had deposits with a FSLIC insured institution eventutally got their money back [up to $100,000] ... or were some left hanging?

-- Cheryl (Transplant@Oregon.com), October 16, 1999.

R.C.

Sorry - nothing new. I haven't talked to Quiggins since I had lunch with him more than a year ago. I'm sure Shell has done a lot more by now. [It really p*ssed me off to see the play with words when he was quoted RE embedded chips vs embedded systems.]

Most of the majors have done a lot. They all started with their legacy systems pretty early. Process control was where they got the late start. And, as you know, there's still some key areas that can't and won't be fixed until after 1/1/00. We'll find out in 76 days.

I hear that there's a meeting in Memphis [I think it was yesterday.] with newspaper managing editors. He, Koskinen and a friend of mine were speakers. My pal has a different outlook than Koskinen and Quiggins. It will be interesting to see what comes out of this. I'm afraid it's gonna be the "same ole, same ole" by the media. Hope not. Too many mixed messages out there creating increased complacency.

-- Cheryl (Transplant@Oregon.com), October 17, 1999.

Cheryl wrote:

But, at the same time ... these MEGA mergers ... have created HUGE entities ... that the FDIC may not be able to be bail out.

The FDIC insurance fund is divided up into two parts: BIF (Bank Insurance Fund) for commercial banks, and SAIF (Savings Association Insurance Fund) for savings banks and thrifts. SAIF is the successor to the FSLIC insurance fund, which was swallowed up by the FDIC after the S&L crisis.

Currently, BIF only has about $30 billion in the fund to cover over $3,000 billion in domestic deposits. The FDIC BIF fund is designed to (1) instill confidence in the US banking system, and (2) cover depositor losses in ISOLATED cases of bank failure.

Should even a small number of medium or large banks fail at once, the FDIC fund would quickly be depleted. Then it would be up to the US government to make good the deposits of insured bank customers.

How many of you here are willing to place your faith in the US government in early 2000 to make good your "insured" deposits if numerous bank failures bankrupt the FDIC?

-- Nabi (nabi7@yahoo.com), October 17, 1999.

Cheryl,

Thanks for responding about Oil. My information is much more recent it seems, but the messages indeed have been mixed, but the guys out in the fields are telling something quite different from the Ivory Tower fellows. I'd be interested in hearing how that meeting went. IF you find out, let us know. Thanks again

-- R.C. (racambab@mailcity.com), October 17, 1999.