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AIMD-95-154R 1 (1995-05-31)

handle is hein.gao/gaobackvk0001 and id is 1 raw text is: 

GAO          United States
             General Accounting Office
             Washington, D.C. 20548

             Accounting and Information
             Management Division
             B-261516




             May 31, 1995

             The Honorable John J. LaFalce
             House of Representatives

             Dear Mr. LaFalce:

             This letter responds to your April 13, 1995, request for
             certain information on the designated ratio of reserves to
             insured deposits established for the Bank Insurance Fund
             (BIF) and the Savings Association Insurance Fund (SAIF).
             Specifically, you asked whether, in our recent study of the
             potential premium rate disparity between institutions insured
             by BIF and SAIF1 or in other work, we had analyzed the
             adequacy of the designated reserve ratio. or had otherwise
             officially expressed views on the reserve ratio.

             The Financial Institutions Reform, Recovery, and Enforcement
             Act (FIRREA) of 1989 created BIF and SAIF and designated the
             Federal Deposit Insurance Corporation (FDIC) as administrator
             of the two Funds. FIRREA designated a minimum ratio of
             reserves to insured deposits of 1.25 percent or a higher
             percentage determined by FDIC's Board of Directors, not to
             exceed 1.5 percent, for BIF and SAIF. FIRREA also provided
             for specific premium rates to build each Fund's reserves up
             to the designated reserve ratio. The Omnibus Budget
             Reconciliation Act of 1990 removed the 1.5 percent reserve
             ratio upper limit. FDIC may increase the designated reserve
             ratio for any year it determines that circumstances exist
             raising a significant risk of substantial future losses to
             either BIF or SAIF.

             In our recent study of the premium rate disparity between BIF
             and SAIF, we did not analyze or otherwise assess the adequacy
             of the designated reserve ratio as a level of reserves
             sufficient to withstand the pressure of substantial financial
             institution failures in the future. Our study focused on the


             'Deposit Insurance Funds: Analysis of Insurance Premium
             Disparity Between Banks and Thrifts (GAO/AIMD-95-84, March 3,
             1995).

                                           GAO/AIMD-95-154R Reserve Ratio

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