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The 1990's The 1990s The economy displays less volatility in growth, unemployment, and inflation than in previous decades. This volatility leads some economists to prematurely hail the end of the business cycle. The unemployment rate declines, reaching a 30-year low of 3.9 percent in early 2000. Inflation averages 2.5 percent annually, compared with 5 percent in the 1980s and more than 6 percent in the 1970s. The stock market yields more than 25 percent annually in the last half of the decade and supports consumer spending. The 1990s is the longest bull market in history. Investors believe that the market and the economy have entered a new age, which is attributed to advances in technology. NASDAQ experiences a 795 percent cumulative 10-year return. Growth is driven by increases in labor productivity, which is fueled by information and communications technology. In the mid-1980s, 18 percent of U.S. adults use a computer. In the mid-1990s, 50 percent use a computer. People and businesses around the world communicate by email and cellular phones. The Internet will change the face of banking and commerce. The S&L crisis that began in the early 1980s ends in the mid-1990s. The result is 1,600 bank failures and 1,300 S&L failures. 1990 By year-end, the FDIC has 19,247 employees, including 4,899 RTC employees. 168 FDIC-insured banks fail. The RTC resolves 315 failed S&Ls. The FDIC insurance premiums increase from 8.3 cents to 12 cents per $100 of deposits. This is the first rate increase since the FDIC began operations in 1934. Mutual funds grow to $1.5 trillion from $250 billion in 1983, partly because of the exodus of deposits from banks and S&Ls. Iraq invades Kuwait, and the subsequent war between the U.S. and Iraq leads to higher oil prices, reduced consumption, and declining demand. 1991 Two statutes provide the Resolution Trust Corporation (RTC) with $36.7 billion in additional funding. On January 1, the FDIC increases insurance premiums from 12 cents to 19.5 cents per $100 of deposits. On July 1, the FDIC increases premiums to 23 cents per $100 of deposits. By year-end, the FDIC’s Bank Insurance Fund (BIF) is insolvent by $7 billion. By year-end, the FDIC has 22,586 employees, including 8,614 RTC employees. FDIC monitors 1,090 problem banks with $609.8 billion in assets. 124 FDIC-insured banks with $63 billion in assets fail—one-third are in New England. The Office of the Comptroller of the Currency (OCC) declares the Bank of New England insolvent and appoints the FDIC receiver. Twenty percent of the bank’s loans are non-performing. The bank is considered “too big to fail,” and all depositors are protected—even those with a more than $100,000 insured limit. The General Accounting Office reports that the OCC failed to take timely and forceful supervisory action. Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 This act fixes problems not addressed in FIRREA. This act: Gives the FDIC authority to borrow $30 billion from the U.S. Treasury to help replenish the Bank Insurance Fund (BIF) Provides for a line-of-credit from the U.S. Treasury Directs the FDIC to apply risk-based insurance premiums. Before this, there was a statutorily mandated flat rate Puts significant restrictions on the designation of “too big to fail,” requiring approval of the President of the United States Requires the FDIC to close banks in a manner that is least costly to the BIF Requires that prompt corrective action be taken against banks based on their capital levels. Gives the FDIC authority to close depository institutions when capital levels fall below 2 percent Places new restrictions on the use of brokered deposits Requires banks to apply to the FDIC for deposit insurance independently of the chartering process Requires bank regulators to conduct annual safety-and-soundness examinations of all insured institutions—the healthiest institutions with less than $100 million in assets can extend this exam interval to every 18 months. 1992 RTC requests additional funds to continue resolving the S&L crisis. Congress does not approve the funding. The Bank Insurance Fund (BIF) ends the year with a deficit balance of $101 million. The banking industry earns record profits of $32 billion for the year. For the first time since 1984, the FDIC receives more in premiums than it spends on bank failures. The Treaty of Maastricht is signed, which forms the European union. 1993 U.S. Presidents during the 1990s George Bush (1989-1993) Bill Clinton (1993-2001) Banks begin paying risk-based insurance premiums, replacing the flat-rate assessment system. Under the new risk-based premium plan, banks pay an average of 23.7 cents per $100 of deposits for insurance. The banking industry earns record profits of $43.1 billion. 41 FDIC-insured banks fail, the lowest number of failures in 12 years. RTC Completion Act of 1993 This act: Provides final funding of $18 billion for the RTC Provides for the closure of the RTC and the transfer of its workload and employees to the FDIC. 1994 13 FDIC-insured banks with $1.4 billion in assets fail. Banks set a new earnings record, with reported net income of $44.7 billion. The North American Free Trade Agreement (NAFTA) links the U.S., Canada, and Mexico into free trade, eliminating some tariffs and phasing out others. The Federal Reserve Board raises the discount rate six times during the year. Banks invest $19 billion in technology. Mergers and consolidations in the banking industry continue to increase; 550 banks are absorbed by mergers or consolidations. Only 50 new bank charters are issued, the fewest since 1943. The Bank Insurance Fund (BIF) grows to $21.8 billion. The FDIC electronically computes assessments and electronically collects premiums. Riegle Community Development and Regulatory Improvement Act of 1994 This act: Contains provisions aimed at curbing non-bank lenders’ practices of targeting low and moderate income homeowners, minorities, and the elderly for abusive lending practices Contains more than 50 provisions to reduce bank regulatory burden and paperwork requirements. Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 This act eliminates the legal impediments to full interstate banking. This act: Permits bank holding companies to acquire banks in any state Permits interstate mergers among banks, subject to concentration limits, state laws, and Community Reinvestment Act evaluations Allows foreign banks to branch to the same extent as U.S. banks Raises the asset ceiling to qualify for the extended exam interval to $250 million and allows more banks to qualify as "healthy." 1995 The RTC sunsets. Over its 6 1/2 years of existence, the RTC resolves 747 S&Ls with $403 billion in assets at a cost of $160 billion to the taxpayer. The FDIC lowers insurance premiums in on July 1. The FDIC launches its first public website in March. 1996 The U.S. Supreme Court, siding with Citibank, rules that states may not regulate the fees charged by out-of-state credit card banks. The ruling is crucial for large, nationwide credit card issuers, many of whom have based their strategies on the ability to export fees into other states. Banks control $4.6 trillion in assets. More than 7,000 mutual funds control $3.7 trillion in stock, bonds, and money-market assets (compared with 1,840 mutual funds and $716 billion in 1986). Investors have $1.7 trillion in defined contribution retirement plans. The FDIC lowers premiums for the best-managed banks. More than 90 percent of the FDIC-insured banks pay nothing for deposit insurance. The FDIC recapitalizes SAIF with a one-time special assessment equal to $0.657/$100 of deposits (or 65.7 basis points). Deposit Insurance Funds Act of 1996 This act closes the chapter on the S&L crisis by providing for the capitalization of Savings Associations Insurance Fund (SAIF). Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) This act accomplishes the following: Amends the FDIA to eliminate or revise various application, notice, and record keeping requirements to reduce regulatory burden Amends the Fair Credit Reporting Act to strengthen consumer protections relating to credit reporting agency practices Requires that one FDIC board member be a former bank regulator. 1997 The Asian financial crisis strikes several major Asian economies, revealing severe problems in the Asian banking and financial sectors. The economic crisis leads to political upheaval. Anti-Western sentiment increases. The crisis demonstrates how rapidly money moves around the globe. The crisis is intensively analyzed by economists for its breadth, speed, and dynamism. Perhaps more interesting to economists is the speed with which the crisis ends, leaving most of the developed economies unharmed. The Asian crisis contributes to the Russian and Brazilian crises in 1998 because after the Asian crisis, banks are reluctant to lend to emerging markets. 1998 Russia experiences a series of economic and fiscal crises, which occur as East Asia and Latin America are undergoing their own financial crises. The global financial crisis creates unease in the world financial markets and raises questions about the strength of the international financial system. Citicorp and Travelers Group merge to become Citigroup, which weakens the separation of banking and commerce that has been in effect since 1933. 1999 Annual ATM transactions exceed $1 billion. The banking industry and the banking regulators, in anticipation of computer problems with the new millennium, place key emphasis on Y2K. The U.S. experiences its first budget surplus in decades. Gramm-Leach-Bliley Act of 1999 This act: Repeals the last provisions of the Glass-Steagall Act of 1933. Creates a new financial holding company authorized to: Underwrite and sell insurance and securities Conduct both commercial and merchant banking Invest in and developing real estate activities Underwrite municipal bonds (national banks only) Restricts the disclosure of nonpublic customer information by financial institutions Imposes criminal penalties for obtaining customer information from a financial institution under false pretenses Amends the Community Reinvestment Act so that financial holding companies cannot be formed before their insured depository institutions receive and maintain a satisfactory CRA rating.