Federal Deposit Insurance Corporation Improvement Act of 1991
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The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) was a piece of federal legislation that was signed into law by President George H.W. Bush (R) in December 1991. The act increased the amount of the money that the Federal Deposit Insurance Corporation (FDIC) could borrow from the United States Department of the Treasury (from $5 billion prior to the law's enactment to $30 billion). The act also made alterations to the FDIC's authority over member institutions and established the Truth in Savings Act.[1][2]
Background
The Federal Deposit Insurance Corporation (FDIC) is an independent government corporation that provides deposit insurance to banks. Deposit insurance covers a depositor's accounts dollar-for-dollar in the event of a bank failure or closing, ensuring that depositors do not lose their money as a result of a bank's actions. The FDIC was created as part of the Glass-Steagall Act, after numerous bank failures. Bank failures occur when banks are unable to meet their financial obligations and thus become insolvent. As banks failed, many depositors began withdrawing money from their own banks, in case they became insolvent. These mass withdrawals led to more bank closures, with many banks unable to handle the volume of withdrawal requests. At its creation, the FDIC insurance limit was $2,500. This was raised by subsequent legislation.[3][4]
The FDIC does not receive public funds. Instead, the FDIC is funded by membership dues paid by member banks. While no federal law mandates participation, most states require banks to be members in the FDIC to be chartered in the state. As of October 2014, the FDIC employed over 7,000 people and insured over 6,000 institutions.[5]
During the savings and loan crisis in the 1980s and 90s, bank failures increased. The Federal Reserve estimated that between 1980 and 1991 “nearly 1300 commercial banks either failed or required failing bank assistance from the FDIC.”[6]
Legislative history
The Federal Deposit Insurance Corporation Improvement Act of 1991 was introduced in the United States Senate by Senator Donald Riegle (D). The Senate approved the bill on November 21, 1991. The House approved the bill two days later on November 23, 1991. The bill was signed by President George H.W. Bush on December 19, 1991.[7]
Components
FDICIA increased the FDIC’s line of credit from the United States Department of the Treasury from $5 billion to $30 billion. The FDICIA also established the Truth in Savings Act.[1][2]
FDICA also implemented provisions outlining how the FDIC should involve itself with failing financial institutions. The law mandated that the FDIC and other regulators take "prompt corrective action" with failing insured institutions. According to Federal Reserve History, the prompt corrective action provision required the FDIC and other banking regulators "to take progressively severe, corrective, supervisory actions as an insured depository institution's capital declines." FDICA also established "least-cost resolution provisions," which required the FDIC "to choose the resolution method that minimizes the cost to taxpayers of a bank failure."[6]
See also
External links
Footnotes
- ↑ 1.0 1.1 Government Publishing Office, "Federal Deposit Insurance Corporation Improvement Act of 1991," December 19, 1991
- ↑ 2.0 2.1 Investopedia, "Federal Deposit Insurance Corporation Improvement Act - FDICIA," accessed March 1, 2017
- ↑ Federal Deposit Insurance Corporation, "History of the FDIC," accessed October 4, 2016
- ↑ Federal Deposit Insurance Corporation, "Deposit Insurance FAQs," accessed October 4, 2016
- ↑ Federal Deposit Insurance Corporation, "Who is the FDIC?" accessed October 4, 2016
- ↑ 6.0 6.1 Federal Reserve History, "Federal Deposit Insurance Corporation Improvement Act of 1991," accessed March 1, 2017
- ↑ Govtrack, “S. 543 (102nd): Federal Deposit Insurance Corporation Improvement Act of 1991,” accessed December 21, 2016
