Academic journal article Journal of Accountancy

Treasury Official Recommends Ways to Resolve SAIF's Problems

Academic journal article Journal of Accountancy

Treasury Official Recommends Ways to Resolve SAIF's Problems

Article excerpt

John D. Hanvke Jr., undersecretary of the Treasury for domestic finance, told members of the Senate Banking, Housing and Urban Affairs Committee that the failure of one or two large thrift institutions could exhaust the slender reserves of the Savings Association Insurance Fund (SAIF), leaving it insolvent. Hawke said that as of March 31, 1995, the SAIF held only $0.31 in reserves for each $100 in insured deposits. Compounding the reserve problem is the SAIF's "meager" income--45% of SAIF premiums are used to pay interest on the Financing Corporation (FICO) bonds issued to prop up a prior insurance fund.

Hawke said SAIF-insured deposits would continue to shrink because under the Federal Deposit Insurance Corporation's proposed premium schedule, SAIF premiums for the healthiest institutions would be "nearly six times as high as the competing Bank Insurance Fund's (BIF) premiums." He said institutions avoided the SAIF's high premiums by selling off loans and reducing their need for deposits, replacing them with nondeposit funding sources or switching deposits from the SAIF to the BIF. If this problem is not corrected, said Hawke, the SAIF's weaknesses could not only leave it insolvent but it also could leave FICO interest payments in default.

To resolve the SAIF's problems, Hawke proposed that "institutions with SAIF-insured deposits could pay a special assessment at a rate sufficient to increase the SAIF's reserves to $1.25 per $100 of deposits at the beginning of 1996."

Jean M. Joy, audit partner of Wolf & Company in Boston and member of the American Institute of CPAs savings institutions committee, told the Journal that "CPAs would have to determine how to account for this assessment. Depending on the terms, CPAs may set it up as a prepaid asset amortized over time, or it could be expensed when it is paid." Joy said this decision would eventually affect the CPAs' audit opinion. "The SAIF-insured institution may not have sufficient capital to continue as a going concern," said Joy. …

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