Bank Insurance Fund (BIF)

What Is the Bank Insurance Fund (BIF)

The Bank Insurance Fund (BIF) was a unit of the Federal Deposit Insurance Corporation (FDIC) that gave insurance protection to banks that were not classified as a savings and loan association. The BIF was made because of the savings and loan crisis that happened in the late 1980s.

Understanding the Bank Insurance Fund

The BIF was a pool of money made in 1989 by the FDIC to safeguard the deposits made by banks that were members of the Federal Reserve System. The BIF was made to separate bank insurance money from thrift insurance money.

A thrift bank — likewise just called a thrift — is a type of financial institution that specializes in offering savings accounts and giving home mortgages. Thrift insurance money came from the Savings Association Insurance Fund. Banks were boosted to rename themselves as either a bank to a thrift or a thrift to a bank, contingent upon which fund had lower expenses at a given time.

This prompted the Federal Deposit Insurance Act of 2005, which nullified the Savings Association Insurance Fund and the BIF and made a solitary Deposit Insurance Fund.

The Deposit Insurance Fund

The primary reasons for the Deposit Insurance Fund (DIF) are as per the following:

1. To safeguard the deposits and safeguard the depositors of insured banks
2. To determine failed banks

The DIF is funded primarily through quarterly assessments on insured banks, yet it likewise gets interest income on its securities. The DIF is reduced by loss provisions associated with failed banks and by FDIC operating expenses.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) reconsidered the FDIC's fund management authority by setting requirements for the Designated Reserve Ratio (DRR) and rethinking the assessment base, which is utilized to calculate banks' quarterly assessments. (The reserve ratio is the DIF balance separated by estimated insured deposits.)

Special Considerations

In response to these statutory corrections, the FDIC developed a complete, long-term management plan for the DIF intended to reduce supportive of cyclicality and accomplish moderate, consistent assessment rates all through economic and credit cycles while likewise keeping a positive fund balance even during a banking crisis. The FDIC Board adopted the existing assessment rate plans and a 2% DRR as per this plan.

The DIF's balance totaled $110.3 billion in the fourth quarter of 2019, which was an increase of $1.4 billion from the finish of the previous quarter. The quarterly increase was driven by assessment income and interest earned on investment securities held by the DIF. The reserve ratio stayed unchanged from the previous quarter at 1.41%.

Likewise, as indicated by the FDIC, "The number of problem banks tumbled from 55 to 51 during the fourth quarter, the most reduced number of problem banks since fourth quarter 2006. Total assets of problem banks declined from $48.8 billion in the second from last quarter to $46.2 billion."

Different features for the entire year 2019 incorporate that "The banking industry reported entire year 2019 net income of $233.1 billion, down $3.6 billion (1.5%) from 2018. The decline in net income was basically due to more slow growth in net interest income and higher loan-loss provisions. Lower noninterest income additionally contributed to the trend. The average return on assets declined from 1.35% in 2018 to 1.29% in 2019."

Features

• Housed inside the FDIC, the BIF gave coverage to wiped out banks, in response to the savings and loan crisis of the late 1980s. In 2006 BIF merged with the Savings Association Insurance Fund and turned into the Deposit Insurance Fund.
• The Bank Insurance Fund (BIF) gave coverage to depository institutions that are not classified as savings and loan associations.
• The 2010 Dodd-Frank financial reforms laid out a depository reserve requirement for all member banks in the DIF pool.