Wednesday, May 6, 2009

source of income for the federal Deposit insurance Corporation

Having considered earlier the amount of disbursements by the corporation to depositors when banks have failed, It might be well to consider the sources of income and financial status of the FDIC. insured banks have been required since 1935 to pay an assessment rate of 1\12 of 1 per cent of their assessable deposits. The Federal Deposits Insurance Act of 1950 provided for a credit against current assessment, which first amounted to 60 per cent of the prior years 's net assessment income, but was raised to 66,2\3 per cent in 1961. In 1976 an amount of $380 million was credited to banks against their future assessments, thereby reducing the effective assessment rate in that year to 1\27 of 1 per cent of assessable deposits.
From these assessments and investment income, after deducting losses and operating expenses, the corporation was able by the end of 1976 to build up a deposit insurance fund of more than $7 billion, which was virtually all held in U.S. government securities. (in 1976 investment income was $445 million, whereas assessment income totaled only $296 million.) In the event of future insurance losses the FDIC not only can draw on these accumulated investment assets but is also authorized to borrow from the U.S. Treasury up to an additional $3 billion, if needed. So far the latter borrowing authority has never been used, because the income received by the FDIC has been far more than adequate to pay all expenses, including losses of failing banks insured by the FDIC.

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