In the late 1980s, as the banking and thrift industries were experiencing economic circumstances unseen since the Great Depression, Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act.

Thus began the quicker-than-expected recovery of the banking and thrift industries and of deposit insurance funds administered by the Federal Deposit Insurance Corp. Responding to the "thrift crisis," Congress established the Resolution Trust Corp. to resolve failing and failed institutions, abolished the Federal Savings and Loan Insurance Corp., and placed the two deposit insurance refunds, the Bank Insurance Fund and Savings Association Insurance Fund, under the auspices of the FDIC.

In addition to housing the deposit insurance funds at the FDIC, Congress mandated reserve ratios for both funds and established procedures and target dates for their adequate recapitalization. Both funds were required to achieve, through premium assessments, a reserve ratio of 1.25% of insured deposits.

Initially, the statutes required that when such ratios were reached, premium assessments would be reduced or suspended and that any excess accumulated in the reserve funds would be rebated to the insured depository institutions, which paid the premiums. In 1996, legislation was enacted that severely restricted or eliminated the refund authority of the FDIC.

Through premiums paid by insured depository institutions and investment revenue generated by the reserve fund, the BIF fund achieved the 1.25% reserve ratio in 1995 and the SAIF fund reached the same level in 1996. At the end of March 1999, the BIF and SAIF funds had reserve ratios of 1.41% and 1.27%, respectively.

The SAIF special reserve currently has a balance exceeding $978 million. Ratios for the funds and the balance of the special reserve are expected to be even greater when the FDIC releases figures for the second quarter of 1999 next month.

The excess reserves held by the FDIC in the BIF and SAIF funds should be refunded to the depository institutions or applied to the Financing Corp. bond obligation that was incurred pursuant to the Competitive Equality Banking Act of 1987 to address the "thrift crisis."

Although deposit insurance premiums have been dramatically reduced or eliminated for well-capitalized institutions, the continued refusal to refund excess reserves is wholly inconsistent with reserve thresholds for the funds.

If it was the intent of Congress to permit the continued growth of the funds, why did it mandate specific reserve ratio percentages? This capital should be employed in a meaningful way. The sooner the better.

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