Federal Deposit Insurance Reform Legislation (Including Budgetary Implications)

Publication Date: November 2005

Publisher: Library of Congress. Congressional Research Service


Research Area: Banking and finance



Two major deposit insurance reform bills are currently before Congress. The Federal Deposit Insurance Reform Act of 2005, H.R. 1185, was initially approved by the House on May 4, 2005. The Safe and Fair Deposit Insurance Act of 2005, S. 1562, was reported as amended by the Committee on Banking, Housing, and Urban Affairs on October 18, 2005.

Because both bills would effectively raise assessments paid by banks and savings associations to the deposit insurance funds, they contribute to the budget reconciliation process. The House bill reduces net direct spending by about $200 million over five years ($2.5 billion over 10 years), whereas the Senate bill scores reductions of $300 million over five years ($2.46 billion over 10 years). As a result, both bills have been attached to the budget reconciliation process. S. 1562 is Title II, Subtitles A and B of S. 1932, the Deficit Reduction Omnibus Reconciliation Act of 2005, passed by the Senate on November 3, 2005. In the House, H.R. 1185 is Title IV of H.R. 4241, the Deficit Reduction Act of 2005. Both deposit insurance bills, as passed (House) and as reported (Senate), are identical to their respective reconciliation versions.

These measures, culminating years of congressional attention, share many provisions, yet differ significantly in others. Both would merge the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) into a new Deposit Insurance Fund (DIF) for all depository institutions (except credit unions, which would continue with their own insurance fund). Both would replace the designated reserve ratio with a range within which the Federal Deposit Insurance Corporation (FDIC) would operate DIF. Both would raise the $100,000 coverage limit for deposit insurance for at least some accounts. Credit union coverage would change in step with banks and thrifts. Both bills would allow for refunds of excess reserves to wellcapitalized banks. Both bills would require the FDIC to give credit to institutions for past premium payments if the FDIC must make new assessments, thus accounting for the disparity between old and newer institutions.

The bills differ in important respects. Insurance coverage limits rise immediately for most accounts in the House bill and would be indexed for inflation automatically at five-year intervals in the future. The Senate bill increases coverage limits immediately for retirement accounts and allows the FDIC, at its discretion, to increase limits for all accounts at five-year intervals in the future. The House allows for both one-time and ongoing credit pools against future premiums, whereas the Senate allows only an initial credit. The House, but not the Senate, would limit premiums paid by well-capitalized and operated banks, so long as the new insurance fund was within the reserve range.

This report will be updated as warranted by events.