What is the Bank Insurance Fund (BIF)
The Bank Insurance Fund (BIF) was a unit of the Federal Deposit Insurance Corporation (FDIC) that provided insurance protection to banks that were not classified as a savings and loan association. The BIF was created following the savings and credit crisis of the late 1980s.
Key points to remember:
- The Bank Insurance Fund (BIF) has provided coverage to deposit-taking institutions that are not classified as savings and loan associations.
- Housed within the FDIC, the BIF provided coverage to insolvent banks in response to the savings and credit crisis of the late 1980s. In 2006, the BIF merged with the Insurance Fund of savings banks and became the Deposit Insurance Fund.
- The 2010 Dodd-Frank financial reforms established a deposit reserve requirement for all DIF pool member banks.
Understanding the Bancassurance Fund
The BIF was a money pool created in 1989 by the FDIC to insure deposits made by Federal Reserve member banks. The BIF was created to separate bank-insurance money from insurance-savings money.
A savings bank, also called simply a savings bank, is a type of financial institution that specializes in offering savings accounts and mortgages. The money for the savings insurance came from the Insurance Fund of the Savings Association. Banks were encouraged to reclassify either as a savings bank or as a savings bank, depending on which fund has lower fees at any given time.
This led to the Federal Deposit Insurance Act of 2005, which abolished the Savings Bank Insurance Fund and the BIF and created a single Deposit Insurance Fund.
The Deposit Insurance Fund
The main objectives of the Deposit Insurance Fund (DIF) are as follows:
- Insure deposits and protect depositors of insured banks
- To solve failed banks
The DIF is financed mainly by quarterly contributions on insured banks, but it also receives interest income on its securities. DIF is reduced by provisions for losses from failed banks and FDIC operating expenses.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) revised the FDIC’s fund management authority by setting requirements for the Designated Reserve Ratio (DRR) and redefining the valuation base, which is used to calculate quarterly valuations. (The reserve rate is the DIF balance divided by the estimated insured deposits.)
In response to these statutory revisions, the FDIC developed a comprehensive, long-term management plan for the DIF designed to reduce procyclicality and achieve moderate and stable valuation rates throughout business and credit cycles while maintaining a positive fund balance even during a banking crisis. The FDIC Board of Directors adopted the existing contribution rate schedules and a 2% DRIP in accordance with this plan.
The balance of the DIF totaled $ 110.3 billion in the fourth quarter of 2019, an increase of $ 1.4 billion from the end of the previous quarter. The quarterly increase is driven by contribution income and interest received on investment securities held by the DIF. The reserve ratio remained unchanged from the previous quarter at 1.41%.
Further, according to the FDIC, “the number of problem banks increased from 55 to 51 during the fourth quarter, the lowest number of problem banks since the fourth quarter of 2006. The total assets of problem banks are rose from $ 48.8 billion in the third quarter to $ 46.2 billion. . “
Among other highlights of fiscal 2019, the banking industry reported net income of $ 233.1 billion for fiscal 2019, down $ 3.6 billion (1.5%) from 2018. The decrease in net income is mainly due to slower growth in net interest income. and higher loan loss provisions. Lower non-interest income also contributed to the trend. The average return on assets fell from 1.35% in 2018 to 1.29% in 2019. ”