What Is the Bank Insurance Fund (BIF)

The Bank Insurance Fund (BIF) is a unit of the Federal Deposit Insurance Corporation (FDIC) that provides insurance protection for banks that are not classified as a savings and loan association. As with all FDIC protection, the BIF provides coverage of up to $250,000 per customer account for insolvent banks. The BIF was created as a result of the savings and loan crisis that occurred in the late 1980s.

Key Takeaways:

  • The Bank Insurance Fund (BIF) provides coverage for depository institutions that are not classified as savings and loan associations.
  • Housed within the FDIC, the BIF provides coverage of up to $250,000 per customer account for insolvent banks, in response to the savings and loan crisis of the late 1980s.
  • The 2010 Dodd-Frank financial reforms established a depository reserve requirement for all member banks in the BIF pool.

Understanding the Bank Insurance Fund

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

A thrift bank—also just called a thrift—is a type of financial institution that specializes in offering savings accounts and providing home mortgages. Thrift insurance money came from the Savings Association Insurance Fund. Banks were incentivized to reclassify themselves as either a bank to a thrift or a thrift to a bank, depending on which fund had lower fees at a given time. 

This led to the Federal Deposit Insurance Act of 2005, which abolished the Savings Association Insurance Fund and the BIF and created a single Deposit Insurance Fund.

The Deposit Insurance Fund

The primary purposes of the Deposit Insurance Fund (DIF) are as follows:

  1. To insure the deposits and protect the depositors of insured banks
  2. To resolve failed banks

The DIF is funded mainly through quarterly assessments on insured banks, but it also receives 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) revised the FDIC's fund management authority by setting requirements for the Designated Reserve Ratio (DRR) and redefining the assessment base, which is used to calculate banks' quarterly assessments. (The reserve ratio is the DIF balance divided by estimated insured deposits.)

Special Considerations

In response to these statutory revisions, the FDIC developed a comprehensive, long-term management plan for the DIF designed to reduce pro-cyclicality and achieve moderate, steady assessment rates throughout economic and credit cycles while also maintaining a positive fund balance even during a banking crisis. The FDIC Board adopted the existing assessment rate schedules and a 2% DRR pursuant to 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 end of the previous quarter. The quarterly increase was led by assessment income and interest earned on investment securities held by the DIF. The reserve ratio remained unchanged from the previous quarter at 1.41%.

Also, according to the FDIC, "The number of problem banks fell from 55 to 51 during the fourth quarter, the lowest number of problem banks since fourth quarter 2006. Total assets of problem banks declined from $48.8 billion in the third quarter to $46.2 billion."

Other highlights for the full-year 2019 include that "The banking industry reported full-year 2019 net income of $233.1 billion, down $3.6 billion (1.5%) from 2018. The decline in net income was primarily due to slower growth in net interest income and higher loan-loss provisions. Lower noninterest income also contributed to the trend. The average return on assets declined from 1.35% in 2018 to 1.29% in 2019."