Duncan Faircloth: “In 1991, the Congress reformed the FDIC and mandated that the fund keep a reserve to deposit ratio of 1.25%.…”

“In 1991, the Congress reformed the FDIC and mandated that the fund keep a reserve to deposit ratio of 1.25%. Fortunately, no government funds were used to keep the FDIC solvent when this was mandated in 1991. It was thought by many that it would take years for the fund to reach that level, but, enough funds flowed into the Bank Insurance Fund that this reserve level was met relatively quickly. What has been happening for the past few years, however, is that the Fund is generating billions in interest and is now well over the designated reserve ratio of 1.25%. The Fund can only be used to provide for losses to the insurance fund, however, because the BIF is considered on budget these excess funds are effectively being used to exaggerate the government surplus. The law envisioned a stop in the need for additional premiums once that fund hit its legal limit, but it never made provisions for excess reserves building and building year after year. Rather than this money piling up in the Bank Insurance Fund, I think it would be put to greater use if these funds were recycled back into the banking system, and back into our economy. Today, I am introducing legislation that would require that the Fund provide a refund of this excess revenue when it reaches a reserve level of 1.5%. This means that the Fund could maintain a cushion of 20% above the level that is required by law, but once that outer level is reached, the excess would have to be refunded.”