Reform of Deposit Insurance
On February 8, 2006, the President signed The Federal Deposit Insurance Reform Act of 2005 (the Reform Act) into law. The Federal Deposit Insurance Reform Conforming Amendments Act of 2005, which the President signed into law on February 15, 2006, contains necessary technical and conforming changes to implement deposit insurance reform, as well as a number of study and survey requirements. (Collectively, the Reform Act.) View highlights of the Reform Act
This page contains links to implementing regulations for The Reform Act.
Sections of Deposit Insurance Reform
- Risk-Based Assessment System
- Operational Processes Governing the FDIC Deposit Insurance Assessment System
- Guidelines on Adjustments to Large Institution Assessment Rates
- Designated Reserve Ratio
- Assessment Dividends
- One-time Assessment Credit
- Inflation Index
- Official FDIC Sign and Advertising
Highlights of the Reform Act
The Reform Act provides for the following changes:
- Merging the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) into a new fund, the Deposit Insurance Fund (DIF). This change was made effective March 31, 2006.
- Increasing the coverage limit for retirement accounts to $250,000 and indexing the coverage limit for retirement accounts to inflation as with the general deposit insurance coverage limit. This change was made effective April 1, 2006.
- Establishing a range of 1.15 percent to 1.50 percent within which the FDIC Board of Directors may set the Designated Reserve Ratio (DRR).
- Allowing the FDIC to manage the pace at which the reserve ratio varies within this range.
- If the reserve ratio falls below 1.15 percent-or is expected to within 6 months-the FDIC must adopt a restoration plan that provides that the DIF will return to 1.15 percent generally within 5 years.
- If the reserve ratio exceeds 1.35 percent, the FDIC must generally dividend to DIF members half of the amount above the amount necessary to maintain the DIF at 1.35 percent, unless the FDIC Board, considering statutory factors, suspends the dividends.
- If the reserve ratio exceeds 1.5 percent, the FDIC must generally dividend to DIF members all amounts above the amount necessary to maintain the DIF at 1.5 percent.
- Eliminating the restrictions on premium rates based on the DRR and granting the FDIC Board the discretion to price deposit insurance according to risk for all insured institutions regardless of the level of the reserve ratio.
- Granting a one-time initial assessment credit (of approximately $4.7 billion) to recognize institutions' past contributions to the fund.
- The Federal Deposit Insurance Reform Conforming Amendments Act of 2005 requires the FDIC to conduct studies of three issues: (1) further potential changes to the deposit insurance system, (2) the appropriate deposit base in designating the reserve ratio, and (3) the Corporation's contingent loss reserving methodology and accounting for losses.
- The 2005 act requires the Comptroller General to conduct studies of (1) federal bank regulators' administration of the prompt corrective action program and recent changes to the FDIC deposit insurance system, and (2) the organizational structure of the FDIC.
Reform Act Implementing Regulations
Risk-Based Assessment System
The Federal Deposit Insurance Act, as amended by the Reform Act, continues to require that the assessment system be risk-based and allows the FDIC to define risk broadly. It defines a risk-based system as one based on an institution's probability of causing a loss to the deposit insurance fund due to the composition and concentration of the institution's assets and liabilities, the amount of loss given failure, and revenue needs of the Deposit Insurance Fund (the fund or DIF). The following rules explain how the FDIC Board defined and differentiated risk among insured depository institutions.
- Rule effective April 1, 2011 - PDF (PDF Help)
- Rule effective April 1, 2009 (superseded by rule above) - PDF (PDF Help)
- Rule effective January 1, 2009 (superseded by rule above) - PDF (PDF Help)
- Rule effective January 1, 2007 (superseded by rule above) - PDF (PDF Help)
Operational Processes Governing the FDIC Deposit Insurance Assessment System
Under the amendments set out in this final rule, deposit insurance assessments will be collected after each quarter ends. Ratings changes will become effective when the rating change is transmitted to the institution. Beginning January 1, 2007, the computation of institutions' assessment bases changed in the following significant ways: institutions with $1 billion or more in assets will determine their assessment bases using average daily deposit balances; existing smaller institutions will have the option of using average daily deposits to determine their assessment bases; and the float deductions used to determine the assessment base were eliminated.
In addition, newly insured institutions will be assessed for the assessment period in which they become insured; prepayment and double payment options were eliminated; institutions will have 90 days from each quarterly certified statement invoice to file requests for review of their risk assignment and requests for revision of the computation of their quarterly assessment payment; and the rules governing quarterly certified statement invoices were adjusted for a quarterly assessment system and for a three-year retention period rather than the former five-year period.
Guidelines on Adjustments to Large Institution Assessment Rates
These are the guidelines the FDIC will use for determining how adjustments would be made to the quarterly assessment rates of insured institutions defined as large Risk Category I institutions, and insured foreign branches in Risk Category I, according to the Assessments Regulation in the Reform Act.
Designated Reserve Ratio
Section 2105 of the Reform Act directs the FDIC Board to set and publish annually a Designated Reserve Raio (DRR) for the Deposit Insurance Fund (DIF) within a rage of 1.15 percent to 1.50 percent.In this rulemaking, the FDIC Board set the Designated Reserve Ratio (DRR) for the DIF at 1.25 percent.
The Reform Act requires that the FDIC declare dividends from the Deposit Insurance Fund (DIF) when the reserve ratio at the end of a calendar year exceeds 1.35 percent, but is no greater than 1.5 percent. In that event, the FDIC must generally declare one-half of the amount in the DIF in excess of the amount required to maintain the reserve ratio at 1.35 percent as dividends to be paid to insured depository institutions. The Reform Act also requires that the FDIC declare a dividend from the DIF when the reserve ratio at the end of a calendar year exceeds 1.5 percent. In that event, the FDIC must declare the amount in the DIF in excess of the amount required to maintain the reserve ratio at 1.5 percent as dividends to be paid to insured depository institutions. The Board has the ability to suspend or limit dividends under certain circumstances. These circumstances are further explained in the rule.
- Proposed rule published March 24, 2008 - PDF (PDF Help)
- Rule effective January 1, 2007 - PDF (PDF Help)
One-time Assessment Credit
The Reform Act granted a one-time assessment credit (of approximately $4.7 billion) to recognize institutions' past contributions to the fund. Specifically, the Reform Act required the Board to provide a one-time assessment credit to each "eligible" insured depository institution (or its successor) based on the assessment base of the institution as of the 1996 assessment base ratio. An "eligible" insured depository institution is one that: was in existence on December 31, 1996 and paid a Federal deposit insurance assessment prior to that date; or is a "successor" to any such insured depository institution.
The final rule also establishes the qualifications and procedures governing the application of assessment credits, and provides a reasonable opportunity for an institution to challenge administratively the amount of the credit.
Inflation Index; Certain Retirement Accounts and Employee Benefit Plan Accounts
Increases the coverage limit for retirement accounts to $250,000 and indexes the coverage limit for retirement accounts to inflation as with the general deposit insurance coverage limit.
Official FDIC Sign and Advertising of FDIC Membership
The final rule replaces the separate signs used by Bank Insurance Fund (BIF) and Savings Association Insurance Fund (SAIF) members with a new sign, or insurance logo, to be used by all insured depository institutions. In addition, the final rule extends the advertising requirements to savings associations, consolidates the exceptions to those requirements, and restricts the use of the official advertising statement when advertising non-deposit products.
Comments received on the proposed rules that preceded the final rules listed above can be found here: http://www.fdic.gov/regulations/laws/federal/propose.html