This article was originally published on December 11, 2018 an has been updated.
The Federal Deposit Insurance Corporation (FDIC) passed the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) in an effort to strengthen the banking environment and to reduce the negative impacts of the savings and loan crisis of the 1980s and early 1990s. The Act included a number of key provisions affecting the banking industry, including primarily:
- Prompt corrective action (PCA) provision. The PCA provision requires Federal banking agencies to take action when an insured depository institution’s capital is classified as undercapitalized, significantly undercapitalized or critically undercapitalized (as determined by selected capital measures). These interventions, in an effort to minimize losses of all involved parties, depend on the level of undercapitalization and may include being placed into conservatorship or receivership.
- Least-cost resolution provisions. The least-cost resolution provisions require the FDIC to choose a resolution method for failed insured depository institutions that minimizes the costs to taxpayers. The FDIC is limited in its ability to absorb losses with an exception for preserving institutions that are too big to fail.
- Improved examinations. FDICIA adjusted the conditions that allowed an institution to qualify for an 18-month, full scope, on-site examination, in effect increasing the volume of institutions subject to these examinations. FDICIA also required the appropriate Federal banking agencies to improve the quality of their examinations through reviews of the agencies and their staff training and increasing the number of examiners, supervisors and others employed by the agencies.
- Truth in Savings Act (TISA). TISA was enacted as part of the passage of FDICIA and requires banks to disclose to consumers the rates (annual percentage yields) and fees associated with their accounts.
Section 36 and Part 363
Section 36 of the Federal Deposit Insurance Act (which was added by Section 112 of FDICIA) and Part 363 of the FDIC’s regulations aim to facilitate the early identification of problems in financial management at insured depository institutions over a certain asset threshold size. The institutions subject to the requirements under Section 36 and Part 363, commonly referred to as covered institutions, are currently defined as those institutions with $500 million or more in total assets. Additional requirements become effective once a covered institution reaches $1 billion in total assets.
