Deposit Insurance Reform Has Arrived

The gloom-and-doomers have fastened on the fact that the Bank Insurance Fund (formerly the Federal Deposit Insurance Corp.) actually declined in size in 1988 (for the first time in the FDIC's 35-year history), dropping to $14 billion from $18 billion. They also point out that the ratio of bank...

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Bibliographic Details
Published inThe American banker Vol. 154; no. 239
Main Author THOMAS L. "LUD" ASHLEY, President, Association of Bank Holding Compa nies
Format Newspaper Article
LanguageEnglish
Published New York, N.Y SourceMedia 08.12.1989
Subjects
Bank reserves
Banking industry
Cost control
Deposit insurance
Rebates
Reforms
Savings & loan associations
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Summary:The gloom-and-doomers have fastened on the fact that the Bank Insurance Fund (formerly the Federal Deposit Insurance Corp.) actually declined in size in 1988 (for the first time in the FDIC's 35-year history), dropping to $14 billion from $18 billion. They also point out that the ratio of bank fund reserves to insured deposits dropped to its all-time lowest point, with only 83 cents of reserves for every $100 of insured deposits. Texas-Size Losses The new law requires banks to maintain the fund at that target level, and authorizes reinstitution of assessment credits (rebates) only after the target is attained. Moreover, the FDIC is given authority, in event of an extraordinary emergency, to increase both the target level (up to 1.50%) and deposit insurance assessments, over and above the 80% increase, should such actions prove to be needed. It should be clear even to the doom-and-gloomers that these changes have produced a Bank Insurance Fund that is much stronger than the former FDIC fund, with much larger reserves, a higher ratio of reserves to insured deposits, and with a huge cash flow of over $5 billion a year including both assessment and investment income.
ISSN:0002-7561
1945-578X