1.3: Viability
The deposit insurance funds and system remain viable. Other Information:
Means & Strategies: The FDIC maintains separate insurance funds for banks and for savings associations. It maintains the viability
of each fund by investing the funds, monitoring the reserve requirements, collecting riskbased premiums, and evaluating the
deposit insurance system in light of an evolving financial services industry. The FDIC analyzes the growth or shrinkage of
estimated insured deposits, the current assessment base, loss expectations, interest income earned on the funds and operating
expenses. This information is used to estimate the level of assessment revenue necessary to cover projected losses while maintaining
the designated reserve ratio (DRR).3 Assessment revenue is provided through the collection of risk-based deposit insurance
premiums assessed on individual institutions by the FDIC. The FDIC has identified four aspects of the current deposit insurance
system that need to be addressed. Deposit insurance is provided by two insurance funds at potentially different prices; deposit
insurance cannot be priced effectively to reflect risk; deposit insurance premiums are highest at the wrong point in the business
cycle; and the value of insurance coverage does not keep pace with inflation in a predictable fashion. The FDIC solicited
and analyzed the input from its stakeholders and developed the following recommendations: • Merge the Bank Insurance Fund
(BIF) and the Savings Association Insurance Fund (SAIF). • Eliminate the statutory restriction on the FDIC's ability to charge
riskbased premiums to all institutions; the FDIC should charge regular premiums for risk regardless of the level of the fund.
• Eliminate sharp premium swings triggered when the reserve ratio deviates from the DRR. If the fund falls below a target
level, premiums should increase gradually. If it grows above a target level, funds should be rebated gradually. The FDIC Improvement
Act of 1991 requires each fund to maintain a reserve ratio of 1.25% of estimated insured deposits. • Base rebates on past
contributions to the fund, not on the current assessment base. • Index the deposit insurance coverage level to maintain its
real value. External Factors: Industry consolidation presents benefits and risks to the deposit insurance funds. While the
risks to the funds are diminished because of the diversification benefits of consolidation (along geographic and product lines),
the concentration of deposits in fewer insured depository institutions increases the risks to the funds in the event a large
insured depository institution fails. Implementation of the FDIC’s recommendations to revise the deposit insurance system
will require legislative action by the Congress.
Indicator(s):
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