Special assessment on banks, savings and loans finances thrift-deposit insurance fund.

• Author: Klein, Kyle

The fiscal 1997 spending bill signed into law by President Clinton on Sept. 30, 1996 imposes a special assessment on Savings Association Insurance Fund (SAIF)-insured deposits of financial institutions as of Mar. 31, 1995. Banks as well as savings and loans may be assessed, albeit at a lesser rate. Enactment of these provisions caps a tumultuous two years of debate on how the thrift-deposit insurance fund should be recapitalized and whether banks should contribute to it.

Although the one-time assessment is expected to be costly to the industry, the statutory language makes clear that the payment will be deductible. The one-time assessment is allowed as a deduction in the tax year paid, thereby avoiding capital expenditure and other tax accounting issues. In addition, the statute makes clear that the special 10-year year loss carryback rules of Sec. 172(f) are inapplicable to the assessment. However, the statute does not prevent a three-year carryback of any loss resulting from deduction of the special assessment.

The Special Assessment

The heart of the new law is a one-time special assessment on thrift deposits to shore up the SAIF. As part of the "Deposit Insurance Funds Act of 1996," a special assessment will be imposed on SAIF deposits of each insured institution in accordance with regulations of the Federal Deposit Insurance Corporation (FDIC). The applicable rate will be the rate that the FDIC determines (after taking into account certain statutory adjustments) necessary to cause the SAIF to achieve a designated reserve ratio on the first business day of the first month beginning after the Sept. 30, 1996 date of enactment of the spending bill. For this purpose, the deposits involved are measured as of Mar. 31, 1995.

If the FDIC follows its own schedule, collection of the assessment will be via ACH direct debit on Nov. 27, 1996. The payment date of the assessment is determined by the FDIC, but can be no later than 60 days...