Reforming Deposit Insurance—Once Again

Federal deposit insurance was first introduced in the United States in 1933 during the depths of the Great Depression and accompanying bank crisis, which saw a reduction in the number of commercial banks from more than 25,000 to near 15,000, mostly by failure. The insurance system has been changed a number of times since. Most recently, it was modified in the 1990s after the savings and loan (S&L) crisis of the 1980s drove the old Federal Savings and Loan Insurance Corporation (FSLIC) into insolvency—requiring taxpayers to finance its near $150 billion deficit to protect depositors at the failed institutions from loss—and widespread bank failures threatened also to bankrupt the Federal Deposit Insurance Corporation (FDIC). Provisions primarily in the Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 dramatically reduced the liability of taxpayers for losses from future bank failures and, combined with provisions in the Deposit Insurance Funds Act (DIFA) of 1996, changed both the premium structure and the way the FDIC collects the premiums.