Federal Deposit Insurance Reform Act
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The Federal Deposit Insurance Reform Act was signed into law by President George W. Bush (R) on February 8, 2006. The act increased deposit insurance coverage for retirement accounts to $250,000, created the Deposit Insurance Fund, and established a designated reserve ratio for banks.[1]
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 limit was raised periodically after its creation; for example, the Dodd-Frank Act expanded this coverage to $250,000.[2][3]
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.[4]
Legislative history
The Federal Deposit Insurance Reform Act was enacted as part of Deficit Reduction Act of 2005. That bill was introduced in the United States Senate on October 27, 2005. The Senate passed its version of the bill on November 3, 2005, by a vote of 52-47. The United States House of Representatives passed its version of the bill on November 8, 2005. A conference committee was convened to reconcile the differences between the two versions of the legislation. The House approved the conference committee report on December 19, 2005, by a vote of 212-206. The Senate approved an amended version of the conference committee a report on December 21, 2005, by a vote of 51-50 (Vice President Dick Cheney (R) cast the tie-breaking vote). The House approved the Senate's amendment on February 1, 2006. President George W. Bush signed the bill into law on February 8, 2006.[5]
Components
This legislation increased deposit insurance coverage for retirement accounts from $100,000 to $250,000. It also merged the Bank Insurance Fund and the Savings Association Insurance Fund to create the Deposit Insurance Fund. According to the Federal Deposit Insurance Corporation, the purpose of this fund was "to insure the deposits and protect the depositors of insured banks and to resolve failed banks."[1]
The act also established the designated reserve ratio (DRR). The designated reserve ratio was the balance of the Deposit Insurance Fund divided by total estimated insured deposits. This law authorized the FDIC board of directors to set the designated reserve ratio between 1.15 and 1.50 percent of estimated insured deposits.[1][6]
See also
External links
Footnotes
- ↑ 1.0 1.1 1.2 Government Publishing Office, “Federal Deposit Insurance Reform Act,” accessed November 17, 2016 Cite error: Invalid
<ref>tag; name "fulltext" defined multiple times with different content Cite error: Invalid<ref>tag; name "fulltext" defined multiple times with different content - ↑ 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
- ↑ Congress.gov, "S. 1932 - Deficit Reduction Act of 2005," accessed March 1, 2017
- ↑ Federal Deposit Insurance Corporation, “Deposit Insurance Assessments – Designated Reserve Ratio ,” accessed November 17, 2016
