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Accountability * Integrity * Reliability
United States General Accounting Office
Washington, DC 20548
April 16, 2002
The Honorable John J. LaFalce
Ranking Minority Member
Committee on Financial Services
House of Representatives
Subject: Responses to Questions Relating to H.R. 3717, Federal Deposit Insurance
Reform Act of 2002
Dear Mr. LaFalce:
This letter responds to your April 9, 2002, request that we answer questions relating
to H.R 3717, the Federal Deposit Insurance Reform Act of 2002. Among other things,
H.R. 3717 proposes changes to the definition of the reserve ratio for the deposit
insurance fund, as well as provides the Federal Deposit Insurance Corporation
(FDIC) with the flexibility to set the fund's designated reserve ratio within a range.
Current law requires FDIC to maintain the deposit insurance fund balances (net
worth) at a designated reserve ratio of at least 1.25 percent of estimated insured
deposits. If the reserve ratio falls below 1.25 percent of estimated insured deposits,
FDIC's Board of Directors is required to set semiannual assessment rates that are
sufficient to increase the reserve ratio to the designated reserve ratio not later than 1
year after such rates are set, or in accordance with a recapitalization schedule of 15
years or less.
Your questions, along with our responses, follow.
1. Sections 7(t)(6) and 7(1)(7) of the Federal Deposit Insurance Act, which
define, respectively, the Bank Insurance Fund Reserve Ratio and the
Savings Association Insurance Fund Reserve Ratio, as the ratio of the
net worth of the [fund] to the value of the aggregate estimated insured
deposits held in all [fund] members. What does the term net worth
mean with respect to the deposit insurance funds? In particular, is the
reserve for anticipated failures a liability that is to be deducted from the
fund's assets to arrive at net worth for purposes of calculating the ratio?
Currently, FDIC's net worth as defined by U.S. Generally Accepted Accounting
Principles (GAAP) is the same as the net worth used for the reserve ratio calculation.
Both the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund
(SAIF) calculate net worth as the difference between total assets and total liabilities.
BIF's and SAIF's net worth is called Fund Balance on each fund's annual audited
GAO-02-647R Responses to Questions on H.R. 3717](ViewImageLocal?handle=hein.gao/gaobaalyn0001&div=1&collection=&method=preview&ext=.png&size=3)