Darryl E. Getter
Specialist in Financial Economics
Victor Tineo
Presidential Management Fellow
The federal deposit insurance system in the United States protects depositors from losses that would occur in the event that a financial institution becomes insolvent, meaning that the institution’s lending activities did not generate enough revenue to repay depositors their principal and interest. By guaranteeing depositor accounts up to a set limit, deposit insurance may also help prevent “runs,” which occur when the public loses confidence in the ability of a financial institution to repay its depositors and rush to withdraw deposits. A bank run, or panic, can spread and threaten the solvency of other financial institutions should the public also doubt their soundness, thus suddenly and simultaneously withdrawing deposits from those institutions as well. In other words, deposit insurance aims to promote and help maintain public confidence in the U.S. financial system, particularly at times when some depository entities suffer large losses or become insolvent.
The Federal Deposit Insurance Corporation (FDIC) was established to insure bank deposits as an independent government corporation under the authority of the Banking Act of 1933, also known as the Glass-Steagall Act (48 Stat. 162, 12 U.S.C.). The FDIC is not funded by appropriations; it is funded through insurance assessments collected from its member depository institutions, which are 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 (48 Stat. 1216) formed a national system to charter and supervise federal credit unions. The National Credit Union Administration (NCUA), which administers deposit insurance for credit unions, became an independent federal agency in 1970 (P.L. 91-468, 84 Stat. 994). The NCUA is not funded by appropriations, but 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). Proceeds from 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. Credit union failures also increased, and five large corporate credit unions were placed under conservatorship by the NCUA. The 111th 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 through a variety of measures. Should the number and pace of failures result in insurance claims that exceed the sizes of the insurance fund reserves, additional legislative action may be necessary for one or both agencies to continue to resolve failed institutions.
Current congressional interest in deposit insurance relates to oversight of how the FDIC and the NCUA protect deposits and address solvency issues associated with their insurance funds. This report provides an overview of the FDIC and NCUA, the status of both the DIF and NCUSIF, and describes the procedures followed to resolve failed depository institutions. Appendixes to this report describe measures taken to reduce the loss exposure and total risks to the funds. Such measures include the Temporary Liquidity Guarantee Program (TLGP), the Transaction Account Guarantee (TAG) program, and the Temporary Corporate Credit Union Stabilization Fund (TCCUSIF).
Date of Report: August 7, 2012
Number of Pages: 25
Order Number: R41718
Price: $29.95
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