An Update on Emerging Issues in Banking 

Better Deposit Data Show BIF Below Target in First 

Quarter

June 12, 2002 

Estimated insured deposits of the Bank Insurance Fund (BIF) increased by $75 

billion, a 12.4 percent annualized rate, during the first quarter. While large 

increases in insured deposits are a common first-quarter occurrence -- in the first 

quarter of 2001, BIF-insured deposits increased by $71.3 billion -- the most recent 

increase is noteworthy because it caused the ratio of the BIF to insured deposits 

to decline to 1.24 percent. This is below the 1.25-percent Designated Reserve 

Ratio (DRR) target established by the Federal Deposit Insurance Corporation 

Improvement Act of 1991 (FDICIA). It marks the first time since 1995 that the BIF 

reserve ratio has fallen below the designated DRR. 

D

The deposit growth in the first quarter was driven by a reporting change and 

illustrates how under current law, fluctuations in deposits or insurance losses can 

have financial consequences for large numbers of insured institutions when an 

insurance fund is near its DRR. When an insurance fund's reserve ratio falls below 

the target DRR, FDICIA requires that the FDIC raise deposit insurance premiums 

to a level sufficient to restore the reserve ratio to the DRR within a year after 

premiums are set, or else charge every institution insured by the fund at least 23 

basis points (23 cents per $100 of assessable deposits) until the reserve ratio 

meets the DRR. More than 90 percent of all BIF-insured institutions currently do 
not pay any insurance premiums for FDIC coverage. 

About two-thirds of the increase in BIF-insured deposits in the first quarter came 

from a change in the quarterly Call reports that provide the source data for 

estimating insured deposits. This reporting change, which took effect with the 

March 31 Call report, was prompted by evidence of significant uncertainty in the 

estimate that traditional calculations yielded for insured deposits. Since 1982, Call 

reports have contained line items for the number of domestic deposit accounts 

with balances of more than $100,000 (i.e., accounts with balances that exceed the 

limit on deposit insurance coverage), and the total amount of deposits in these 

accounts. These items have been used to calculate an estimate of insured 

deposits: the number of accounts greater than $100,000 is multiplied by 100,000, 

and this amount is subtracted from the total amount of deposits in these accounts. 

The difference is the estimated amount of uninsured deposits. The uninsured 

estimate is then subtracted from a bank's total domestic deposits, yielding an 

estimate of insured deposits. This method of computing insured deposits 

contained no adjustments for two important factors -- the existence of large 

accounts that have multiple ownership or pass-through insurance coverage, and 

multiple accounts held by single depositors that add up to more than $100,000. 

When banks have pass-through accounts that are reported as single accounts, 

the traditional calculation understates actual insured deposits. When banks have 

multiple accounts owned by single individuals that in aggregate exceed $100,000, 

the traditional calculation overstates insured deposits. 

The accuracy of insured deposit estimates became more important with the 

passage of FDICIA in 1991; as mentioned above, FDICIA requires the FDIC to set 

assessment rates in part based on the ratio of an insurance fund to its insured 

deposits. In an effort to obtain better data for estimating insured deposits, a new 

item was added to the Call report in 1993, asking banks that had a better estimate 

of uninsured deposits than the amount produced by the traditional calculation to 

report their better estimate. This item was made voluntary to limit the reporting 

burden. Since its introduction, voluntary participation has been very limited. Only 

155 banks out of more than 8,500 Call reporters provided voluntary better 

estimates in their December 31 2001 Call reports. Concerns about the accuracy of 

the insured deposits estimate have increased with the recent growth in brokered 

deposits. Many of these deposits are issued in amounts of more than $100,000 

and participated out by brokers in shares of $100,000 or less, receiving the benefit 

of pass-through insurance coverage. 

In 2001, the FDIC proposed to make the "better estimate" of uninsured deposits 

mandatory, rather than voluntary, for Call reporters. The Federal Register notice of 

the proposed change, dated October 18, 2001 (Vol. 66, No. 202), can be 

accessed through Federal Register Online. 1 To limit the reporting burden, the 

instructions for the mandatory better estimate emphasize that the estimates 

should be based only on data that are readily available on the banks' general 

ledgers or other records. Beginning with the March 31, 2002 Call report, the 

FDIC's computation of insured deposits subtracts the "better estimate" of 

uninsured deposits from each institution's total domestic deposits. 

Call report data for March 31 indicate that, if insured deposits are computed 

according to the traditional method, using better estimates only for those 

institutions that voluntarily provided them in the December 31, 2001 Call report, 

then insured deposits would have increased by $22.4 billion. This would have 

maintained the BIF reserve ratio at 1.26 percent, since the BIF grew by $258 

million during the quarter. The change to better estimates at the other 8,452 
commercial banks and savings banks that filed Call reports added an additional 

$52.6 billion to BIF-insured deposits. In addition, since 297 of these institutions are 

SAIF members, and since BIF-member institutions hold a considerable share of 

SAIF-insured deposits, the new reporting also added $3.9 billion to SAIF-insured 

deposits. This increase meant that the SAIF reserve ratio remained at 1.36 

percent; if the traditional computation had been used, it would have increased to 

1.37 percent. If the two deposit insurance funds were combined, the resulting fund 

would have a reserve ratio of 1.27 percent. 

The decline in the BIF reserve ratio below the 1.25-percent DRR does not 

automatically trigger deposit insurance premiums for institutions with BIF-insured 

deposits. The FDIC makes semiannual determinations of the condition of the 

deposit insurance funds, and the most recent determination was to not impose 

premiums in the June-December assessment period. The May memorandum 

summarizing the rate case can be viewed at: 

http://www.fdic.gov/deposit/insurance/risk/bif2002_02.html. The next 

determination will be made in November, and if the BIF reserve ratio is still below 

the DRR, then premiums would be assessed for the January-June 2003 period. 

As of March 31, 2002, the BIF balance was $30.7 billion, and the amount of BIFinsured deposits was $2.48 trillion. The SAIF balance was $11.0 billion, and the 

amount of SAIF-insured deposits was $810 billion. Changes in the BIF and SAIF 

reserve ratios will be driven largely by the amount of insurance losses and the 

growth of insured deposits. At the current level of insured deposits, a $248-million 

change in the BIF translates into a 1-basis point change in the BIF reserve ratio. 

With the current BIF assessment base of $3.59 trillion, a one-basis point 

assessment (1 cent per $100 of assessable deposits) would bring in $359 million.

• Quarterly Banking Profile - First Quarter 2002

• Statement by FDIC Chairman Don Powell

1 Please note that a mandatory "better estimate" has been part of the Thrift Financial Reports filed by savings 

and loan

associations since 1993.

Last Updated 06/12/2002 
Chart 1

FDIC INSURANCE FUND RESERVE RATIOS 1997 - 2002 

Percent of Insured Deposits

Month and 

Year

Bank Insurance 

Fund

BIF

Savings Association Insurance 

Fund

SAIF

12/97 1.38 1.36

12/98 1.39 1.37

12/99 1.37 1.43

12/00 1.35 1.43

3/01 1.33 1.43

6/01 1.33 1.40

9/01 1.32 1.39

12/01 1.26 1.36

3/02 1.24 1.36

Note: A reserve ratio is the fund balance as a percentage of estimated insured deposits. As with other Call 

report items, prior periods may reflect adjustments. Only year-end fund balances are audited. BIF-insured 

deposit totals include U.S. branches of foreign banks.