Deposit Insurance Fund (DIF)

The Deposit Insurance Fund is devoted to insuring the deposits of individuals covered by the Federal Deposit Insurance Corporation (FDIC). The Deposit Insurance Fund (DIF) is set aside to pay back the money lost due to the failure of a financial institution. The DIF is funded by insurance payments made by banks. 

Account holders at banks feel more secure if their deposits are insured, and the Deposit Insurance Fund provides the assurance they are. For example, if your bank closed its doors in 2009, you would be covered up to $250,000. This reduces the same type of fear that caused the bank run in the 1930s. A common use of the DIF account balance is to compare it to the total assets of banks on the "FDIC Problem Banks List," which is issued quarterly. The FDIC could not run out of money because it could borrow from the Treasury Department, but large losses would mean higher premiums for the remaining banks in the following years.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) modified the FDIC's fund management practices by setting requirements for the Designated Reserve Ratio (DRR) and redefining the assessment base, which is used to calculate banks' quarterly assessments. The DRR ratio is the DIF balance divided by estimated insured deposits. Responding to these revisions, the FDIC developed a comprehensive, long-term plan to manage the DIF in a way that reduces pro-cyclicality while achieving moderate, steady assessment rates throughout economic and credit cycles and maintaining a positive fund balance in the event of a banking crisis. As part of this plan, the FDIC Board adopted the existing assessment rate schedules and a 2.0 percent DRR. 

The Federal Deposit Insurance Act requires the FDIC's Board to set a target or DRR for the DIF annually. Since 2010, the Board has stuck with the 2.0 percent DRR each year. However, an analysis, using historical fund loss and simulated income data from 1950 to 2010, showed that the reserve ratio would have had to exceed 2.0 percent before the onset of the two crises that occurred during the last 30 years to have maintained both a positive fund balance and stable assessment rates throughout both crises. The FDIC views the 2.0 percent DRR as a long-term goal and the minimum level needed to withstand future crises of similar magnitude.