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Monday, April 4, 2011

Federal Deposit Insurance for Banks and Credit Unions

Darryl E. Getter
Specialist in Financial Economics

The Federal Deposit Insurance Corporation (FDIC) was established as an independent government corporation under the authority of the Banking Act of 1933, also known as the Glass- Steagall Act (P.L. 73-66, 48 Stat. 162, 12 U.S.C.), to insure bank deposits. The FDIC is funded through insurance assessments collected from its member depository institutions and held in what is now known as the Deposit Insurance Fund (DIF). The proceeds in the DIF are used to pay depositors if member institutions fail.

The Federal Credit Union Act of 1934 (P.L. 73-467) formed a national system to charter and supervise federal credit unions, and the National Credit Union Administration (NCUA) became an independent federal agency in 1970 (P.L. 91-468, 84 Stat. 994). The NCUA is funded through insurance assessments collected from its member credit union institutions and held in what is now known as the National Credit Union Share Insurance Fund (NCUSIF). The proceeds in the NCUSIF are used to pay share depositors if member institutions fail.

Beginning in 2008, the number of bank failures increased substantially, and the DIF fell below its statutory minimum requirement. In addition, the pace of credit union failures increased, and large corporate credit unions were placed under conservatorship by the NCUA. The 111
th Congress subsequently provided both the FDIC and the NCUA with greater ability to meet the needs of the insurance funds and stabilize liquidity among depository institutions. Determining whether additional legislative action by the 112th Congress would be necessary may depend on the number and pace of failures by depository institutions.

This report begins with an overview of the FDIC, recent status of the DIF, and efforts to reduce the loss exposure and total risk to the fund. Next, an overview of the NCUA, recent status of the NCUSIF, and efforts to reduce the loss exposure and total risk to the fund are presented. An appendix to this report provides information regarding the procedures that the FDIC and NCUA follow to resolve failed depository institutions. Other appendices summarize the efforts by the agencies to support the funds during the recent period of financial distress and describe other initiatives to maintain liquidity.

Date of Report: March 23, 2011
Number of Pages: 23
Order Number: R41718
Price: $29.95

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