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Deposit Insurance Fund Historical Information

Federal Deposit Insurance Reform Act of 2005

Last Updated: April 17, 2024
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The Deposit Insurance Reform Act of 2005 (Public Law 109-171) was enacted February 8, 2006 as part of the Deficit Reduction Act of 2005. This statute was the result of several years of debate about deposit insurance reform and how it should be implemented. For more information, see Deposit Insurance Reform Act of 2005 Background Materials and view Highlights of the Reform Act.

This page contains links to implementing regulations for The Reform Act.

Some items are PDF files. See PDF Help for assistance.

Highlights of the Reform Act

The Reform Act provides for the following changes:

  • Merging the BIF and the SAIF. Sec. 2102 merged the Bank Insurance Fund (BIF) and the Savings Insurance Fund (SAIF) effective March 31, 2006. When the FDIC was given responsibility for insuring thrifts previously insured by the Federal Savings and Loan Insurance Corporation (FSLIC) under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Congress created a separate fund (the SAIF) managed by the FDIC, to insure those institutions. The FDIC's Fund was renamed the BIF The FDIC had advocated merging the funds because 1) a merged fund would be stronger and more diversified, 2) by the early 2000s, many institutions held both BIF- and SAIF-insured deposits, 3) a merger would eliminate the possibility of a premium disparity between the two funds, and 4) a merger would simplify reporting and accounting for both insured institutions and the FDIC. The merged fund was named the Deposit Insurance Fund (DIF).
  • Deposit Insurance Coverage and Indexing for Inflation. Sec. 2103 contained several provisions relating to coverage limits. First, it provided for the indexing of the standard coverage limit for inflation. The first time the level could be adjusted was after March 10, 2010, and it could be adjusted at five-year intervals thereafter. There were a number of factors involved in making an adjustment, including the overall state of the DIF, potential problems affecting insured institutions, and whether the increase would cause the fund's reserve ratio to fall below 1.15 percent. Sec. 2103 also increased the deposit insurance coverage limit for retirement accounts from $100,000 to $250,000 and provided that those accounts would similarly be adjusted for inflation. The FDIC had recommended that deposit insurance coverage be indexed to inflation because it would ensure more predictable adjustments to coverage in comparison with ad hoc changes that had been made in the past.
  • Assessments. Sec. 2104 made significant changes to the FDIC's risk-based assessment system. The FDIC's Board of Directors was authorized to set assessments for insured institutions at levels determined to be necessary, taking into account the estimated operating expenses of the DIF, the estimated case resolution expenses and income of the DIF, the projected effects of the payment of assessments on insured institutions, and the risk factors enumerated under previous statute, including the requirement that a risk-based system be maintained. Then-current statute prohibited the FDIC from charging premiums to well-capitalized and well-managed insured institutions so long as the reserve ratio was at or above 1.25 percent and expected to remain so. By the early 2000s, this meant that almost all institutions paid nothing for deposit insurance; this requirement had been put in place during a banking crisis, when relatively few institutions met those criteria. In addition, this meant many newly chartered banks had never paid for deposit insurance. As this was contrary to the basic tenets of an insurance system and could encourage moral hazard, the FDIC had recommended that it be allowed to charge premiums based on risk to all institutions, regardless of the level of the reserve ratio.
  • Designed Reserve Ratio. Sec. 2105 replaced the fixed Designated Reserve Ratio (DRR) that had been put in place by FIRREA in 1989, set at 1.25 percent of estimated insured deposits, with the ability for the FDIC's Board of Directors to set the DRR within a range of 1.15 to 1.5 percent of estimated insured deposits, and provided a set of factors that the Board was take into account in designating the ratio for any year. The FDIC had recommended that the DRR be set within a range so as to eliminate the hard triggers and potential attendant sharp premium swings associated with previous statute and so give the FDIC more flexibility in managing the DIF.
  • Dividends. Sec. 2107 provided that the FDIC pay a dividend to insured institutions if certain conditions were met. If at year-end the DIF reserve ratio exceeded 1.5 percent, the FDIC would pay a dividend in an amount that would maintain the ratio at 1.5 percent. If at year-end the reserve ratio was between 1.35 and 1.5 percent (inclusive), the dividend would be 50 percent of the amount that would maintain the ratio at 1.35 percent. The FDIC was given authority to suspend or limit dividends if there was a significant risk of sufficiently large losses to the DIF over the next year, a decision that had to be reviewed annually.
  • One-Time Assessment Credit. Sec. 2107 also provided for a one-time assessment credit to insured institutions based on the institution's assessment base as of year-end 1996 to recognize institutions' past contributions to recapitalizing the fund. For an institution to be eligible for the credit, it had to have been in existence on December 31, 1996 and paid an FDIC assessment before that date, or qualified as a successor to such an insured institution. Given the constraints that had been placed by statute on the FDIC's ability to charge many institutions any assessments at all (see discussion on Sec. 2014), the deposit insurance system had at that point been almost entirely financed by institutions that had paid premiums before 1997. The FDIC was averse to making cash payments from the fund, but acknowledged that an assessment credit provided to institutions that built up the fund was a mechanism that could address the fairness issue that had arisen.
  • Restoration Plans. Sec. 2108 provided that whenever the FDIC projected that within 6 months the reserve ratio of the DIF would fall below the minimum amount set for the DRR, or if the DRR fell below that level without the FDIC having made such a determination, that the FDIC should establish and implement a plan to restore the reserve ratio to the minimum DRR amount within 5 years (or in extraordinary circumstances, a longer period if determined to be necessary).

    • Shortly after the Reform Act was passed, Congress passed the Federal Deposit Insurance Reform Conforming Amendments Act of 2005 (Public Law. 109-173, enacted on February 15, 2006). As the title of the law suggests, it made a number of clarifying technical changes to facilitate the implementation of the Reform Act. This law also required the FDIC to conduct several studies examining further potential changes to the deposit insurance system, the appropriate deposit base in designing the reserve ratio, and the FDIC's contingent loss reserving methodology and accounting for losses. Congressionally Required Studies. It also required the Comptroller General to conduct studies of the federal bank regulators' administration of the prompt correct action program and recent changes to the FDIC deposit insurance system.

    Deposit Insurance Fund Background Materials

    Reform Act Implementing Regulations

    Risk-Based Assessment System

    The Federal Deposit Insurance Act, as amended by the Reform Act, continues to require that the assessment system be risk-based and allows the FDIC to define risk broadly. It defines a risk-based system as one based on an institution's probability of causing a loss to the deposit insurance fund due to the composition and concentration of the institution's assets and liabilities, the amount of loss given failure, and revenue needs of the Deposit Insurance Fund (the fund or DIF). The following rules explain how the FDIC Board defined and differentiated risk among insured depository institutions.

    Operational Processes Governing the FDIC Deposit Insurance Assessment System

    Under the amendments set out in this final rule, deposit insurance assessments will be collected after each quarter ends. Ratings changes will become effective when the rating change is transmitted to the institution. Beginning January 1, 2007, the computation of institutions' assessment bases changed in the following significant ways: institutions with $1 billion or more in assets will determine their assessment bases using average daily deposit balances; existing smaller institutions will have the option of using average daily deposits to determine their assessment bases; and the float deductions used to determine the assessment base were eliminated.

    In addition, newly insured institutions will be assessed for the assessment period in which they become insured; prepayment and double payment options were eliminated; institutions will have 90 days from each quarterly certified statement invoice to file requests for review of their risk assignment and requests for revision of the computation of their quarterly assessment payment; and the rules governing quarterly certified statement invoices were adjusted for a quarterly assessment system and for a three-year retention period rather than the former five-year period.

    Guidelines on Adjustments to Large Institution Assessment Rates

    These are the guidelines the FDIC will use for determining how adjustments would be made to the quarterly assessment rates of insured institutions defined as large Risk Category I institutions, and insured foreign branches in Risk Category I, according to the Assessments Regulation in the Reform Act.

    Designated Reserve Ratio

    Section 2105 of the Reform Act directs the FDIC Board to set and publish annually a Designated Reserve Raio (DRR) for the Deposit Insurance Fund (DIF) within a rage of 1.15 percent to 1.50 percent.In this rulemaking, the FDIC Board set the Designated Reserve Ratio (DRR) for the DIF at 1.25 percent.

    Assessment Dividends

    The Reform Act requires that the FDIC declare dividends from the Deposit Insurance Fund (DIF) when the reserve ratio at the end of a calendar year exceeds 1.35 percent, but is no greater than 1.5 percent. In that event, the FDIC must generally declare one-half of the amount in the DIF in excess of the amount required to maintain the reserve ratio at 1.35 percent as dividends to be paid to insured depository institutions. The Reform Act also requires that the FDIC declare a dividend from the DIF when the reserve ratio at the end of a calendar year exceeds 1.5 percent. In that event, the FDIC must declare the amount in the DIF in excess of the amount required to maintain the reserve ratio at 1.5 percent as dividends to be paid to insured depository institutions. The Board has the ability to suspend or limit dividends under certain circumstances. These circumstances are further explained in the rule.

    One-time Assessment Credit

    The Reform Act granted a one-time assessment credit (of approximately $4.7 billion) to recognize institutions' past contributions to the fund. Specifically, the Reform Act required the Board to provide a one-time assessment credit to each "eligible" insured depository institution (or its successor) based on the assessment base of the institution as of the 1996 assessment base ratio. An "eligible" insured depository institution is one that: was in existence on December 31, 1996 and paid a Federal deposit insurance assessment prior to that date; or is a "successor" to any such insured depository institution.

    The final rule also establishes the qualifications and procedures governing the application of assessment credits, and provides a reasonable opportunity for an institution to challenge administratively the amount of the credit.

    Inflation Index; Certain Retirement Accounts and Employee Benefit Plan Accounts

    Increases the coverage limit for retirement accounts to $250,000 and indexes the coverage limit for retirement accounts to inflation as with the general deposit insurance coverage limit.

    Official FDIC Sign and Advertising of FDIC Membership

    The final rule replaces the separate signs used by Bank Insurance Fund (BIF) and Savings Association Insurance Fund (SAIF) members with a new sign, or insurance logo, to be used by all insured depository institutions. In addition, the final rule extends the advertising requirements to savings associations, consolidates the exceptions to those requirements, and restricts the use of the official advertising statement when advertising non-deposit products.

    Comments received on the proposed rules that preceded the final rules listed above can be found here: http://www.fdic.gov/regulations/laws/federal/propose.html