	Introduction

The federal deposit insurance system in the United States, which was established in the 1930s, protects depositors from losses that may result from at least two causes. Second, a financial institution may find itself unable to repay depositors if its customers suddenly and simultaneously withdraw their deposits based upon speculation or knowledge about the health of similar or neighboring institutions. This phenomenon is generally known as a bank run. Hence, deposit insurance has arguably promoted and helped to sustain public confidence in the U.S. financial system, particularly at times when depositories have suffered large losses. Funds used to reimburse depositors when banks fail are maintained in the Deposit Insurance Fund (DIF), which is managed by the FDIC. In addition, five corporate credit unions, which provide financial services for retail credit unions, saw severe liquidity pressures and were eventually placed under conservatorship by the NCUA. Funds to reimburse credit union members are maintained in the National Credit Union Share Insurance Fund (NCUSIF), which is managed by the NCUA. For example, regulators increased deposit insurance assessments on member institutions. This report provides an overview of the FDIC and the NCUA, the status of the DIF and NCUSIF, and the resolution procedures that are implemented when depository institutions fail. Deposit Insurance for Banks

The FDIC was established as an independent government corporation under the authority of the Banking Act of 1933, also known as the Glass-Steagall Act, to insure bank deposits. When a bank becomes insolvent or fails, the FDIC assumes responsibility for repayment of the principal balance in depositor accounts up to the deposit insurance limits. To cover losses or costs associated with bank failures, the FDIC collects insurance premiums from member depository institutions and places the monies in the DIF. A well-capitalized DIF arguably would help maintain public confidence in the FDIC's ability to protect deposits. The Federal Credit Union Act of 1934 formed a national system to charter, supervise, and examine federal credit unions; the National Credit Union Administration (NCUA) became an independent federal agency in 1970. Premiums are used to pay the fund's operating expenses, cover losses, and build reserves. 91-468 at a minimum 1.2%. The FDIC and NCUA resolution procedures are described below. Credit Union Failures and the NCUA

The NCUA, similar to the FDIC, uses a net worth-asset ratio to determine the solvency of a credit union. Insurance Fund(s) Insolvency and Taxpayer Risk

The risk to U.S. taxpayers to bear the losses of failed institutions increases when one or both of the insurance funds become depleted or insolvent. On February 8, 2006, the Federal Deposit Insurance Reform Act of 2005 (Reform Act; P.L. Data for the large depository institutions and the highly complex institutions, which are collected during examinations, are evaluated using a scorecard with variables from the following categories:
a weighted average CAMELS rating; variables that represent the ability to withstand a decline in asset holdings or an increase in credit or default risk, such as risk-based capital-to-asset ratios; variables that represent the ability to withstand an increase in liquidity or funding risk, such as the ratio of core deposits to total liabilities; and a loss severity score that measures the relative magnitude of potential losses to the FDIC, which is computed as a ratio of possible losses to the total domestic deposits, averaged over three quarters.
The federal deposit insurance system in the United States protects depositors from losses that would occur in the event that a financial institution becomes insolvent, meaning that the institution's lending activities did not generate enough revenue to repay depositors their principal and interest. By guaranteeing depositor accounts up to a set limit, deposit insurance may also help prevent "runs," which occur when bank customers lose confidence in the ability of a financial institution to repay its depositors and rush to withdraw deposits. A bank run, or panic, can spread and threaten the solvency of other financial institutions should the public also doubt their soundness, thus suddenly and simultaneously withdrawing deposits from those institutions as well. In other words, deposit insurance aims to promote and help maintain public confidence in the U.S. financial system, particularly at times when some depository entities suffer large losses or become insolvent.
The Federal Deposit Insurance Corporation (FDIC) was established to insure bank deposits as an independent government corporation under the authority of the Banking Act of 1933, also known as the Glass-Steagall Act (48 Stat. 162, 12 U.S.C.). The FDIC is not funded by appropriations; it is funded through insurance assessments collected from its member depository institutions and held in what is now known as the Deposit Insurance Fund (DIF). The proceeds in the DIF are used to pay depositors if member institutions fail.
The Federal Credit Union Act of 1934 (48 Stat. 1216) formed a national system to charter and supervise federal credit unions. The National Credit Union Administration (NCUA), which administers deposit insurance for credit unions, became an independent federal agency in 1970 (P.L. 91-468, 84 Stat. 994). The NCUA is not funded by appropriations, but through insurance assessments collected from its member credit union institutions and held in what is now known as the National Credit Union Share Insurance Fund (NCUSIF). Proceeds from the NCUSIF are used to pay share depositors if member institutions fail.
Beginning in 2008, the number of bank failures increased substantially, and the DIF fell below its statutory minimum requirement. Credit union failures also increased, and five large corporate credit unions were placed under conservatorship by the NCUA. The 111th Congress subsequently provided both the FDIC and the NCUA with greater ability to replenish the insurance funds and stabilize liquidity among depository institutions through a variety of measures. Should insurance claims (resulting from failures) exceed the sizes of the insurance fund reserves, additional legislative action may be necessary for one or both agencies to continue to resolve failed institutions.
Current congressional interest in deposit insurance relates to oversight of how the FDIC and the NCUA protect deposits and address solvency issues associated with their insurance funds. This report provides an overview of the FDIC and NCUA, the status of both the DIF and NCUSIF, and describes the procedures followed to resolve failed depository institutions. Appendixes to this report describe measures taken to reduce the loss exposure and total risks to the funds.