Summary: GAO discussed proposed legislation that would recapitalize the Bank Insurance Fund (BIF) by requiring banks to contribute 1 percent of their total deposits. GAO found that: (1) in the past 2 years, the Federal Deposit Insurance Corporation (FDIC) Fund lost about $5.1 billion and as a result, the ratio of insurance reserves to insured deposits fell to 0.7 percent, an all time low; (2) additional BIF funding is needed to prevent bank regulators from failing to act on problems because of a lack of money; and (3) the proposed legislation would send a signal to the banking industry that it is to be held responsible for deposit insurance losses. GAO also noted that: (1) the proposed deposits should be viewed as an expense rather than an asset to protect creditors in the event of insolvency; (2) increases in funding should be spread over several years through higher premiums; (3) it favored the implementation of a risk-based deposit insurance premium system; and (4) it was uncertain whether the adverse competitive impact of including foreign deposits in the assessment base outweighed the beneficial effects of raising insurance fund revenues.
