INSURANCE

The Depositors Insurance Fund was created by the state government of Massachusetts in response to the large number of Massachusetts bank failures during the Great Depression. The Federal Deposit Insurance Corporation was inspired by this fund. After the FDIC was created, the state fund was modified to cover all amounts not covered by the FDIC. Typically the FDIC covers the first $100,000 of an account; the Massachusetts fund will cover any amount above that. As a result, account holders in Massachusetts banks generally have all of their deposits insured by the combination of the state fund and the FDIC.

The Federal Deposit Insurance Reform Act (Title II, subtitle B of Pub.L. 109-171, 110 Stat. 9, enacted February 8, 2006, with a companion statute, Federal Deposit Insurance Reform Conforming Amendments Act of 2005, Pub.L. 109-173, 119 Stat. 3601, enacted February 15, 2006), is an Act of Congress which regulates banks. It contained a number of changes to the Federal Deposit Insurance Corporation (FDIC).

• It raised the limit on deposit insurance for retirement accounts from $100,000 to $250,000, and indexed the amount to inflation.
• It merged the two deposit insurance funds that the FDIC had been administering separately since FIRREA.
• It provided credits to banks that had paid into the deposit insurance funds in the early 1990s in the aftermath of the savings and loan crisis.
• It requires that the FDIC issue rebates to the banking industry should the level of the deposit insurance fund rise above 1.50% of total insured deposits.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), passed during the Savings and loan crisis, strengthened the power of the Federal Deposit Insurance Corporation.

It allowed the FDIC to borrow directly from the Treasury department and mandated that the FDIC resolve failed banks using the least-costly method available. It also ordered the FDIC to assess insurance premiums according to risk and created new capital requirements.