The Federal Deposit Insurance Corporation insures deposits in U.S. banks and thrifts up to $250,000. When an institution fails, a charge is made against the Deposit Insurance Fund, which is supported by fees imposed on the banking industry. The fund is also supported by a backstop line of credit from the U.S. Treasury that could be tapped if the fees are insufficient to cover losses.

The fund seemed in little danger of being depleted until the recent financial crisis unfolded. A rash of bank failures caused the fund's balance to drop from about $52 billion in the fourth quarter of 2007 to about $10.4 billion at the end of the second quarter of 2009. Twenty-four banks failed during the quarter — the highest quarterly total since 1992, according to the FDIC. Thirty-one more banks have failed between June 30 and August 27, leading to estimated charges of $10.27 billion against the fund. View or download a list of failed banks and their charges against the fund here.

By law, a review is required whenever the fund incurs a "material loss" from an institution placed in FDIC receivership. To reach that threshold, the loss must exceed the greater of $25 million or 2 percent of an institution's total assets. The review must be carried out by the inspector general of the institution's regulator within six months of the failure. Subsidyscope provides material loss reviews in a downloadable form when they are available.

The FDIC has imposed new fees — including a one-time, special assessment of five basis points, or 5 cents per $100 in assets, announced recently — on banks to replenish the fund, which the agency projects "will remain low but positive through 2009 and then begin to rise in 2010." Nonetheless, Congress has raised the FDIC's line of credit from $30 billion to $100 billion — with the option of going to $500 billion through 2010 — to create a cushion in case the fund falls into negative territory and help from the Treasury is needed. History shows that support from the Treasury can be important. In the 1980s, the fund that insured deposits in savings and loans became insolvent, a victim of a thrift crisis that, by some estimates, cost taxpayers about $125 billion. The fund was abolished in 1989. For more details, click here.

The graphics below show how, as the number of bank failures has soared, the Deposit Insurance Fund's reserves have plummeted.

The reserve ratio is another measure of the fund's precariousness. By law, the fund is supposed to remain within 1.15 percent and 1.5 percent of all insured deposits. If the ratio falls below the lower limit, the FDIC must raise assessment rates on covered financial institutions; if it rises above the upper limit, the FDIC must increase dividends to those same institutions by the excess amount. In December 2007, the reserve ratio was 1.22 percent, but by June 30, 2009, it had fallen to 0.22 percent, the lowest since 1993. A fund restoration plan announced by the FDIC will increase assessment rates with the aim of restoring the ratio to 1.15 percent by December 31, 2015.

Another measure of the fund's instability is the number of problem institutions insured by the FDIC — institutions with weaknesses that threaten their continued financial viability. According to the FDIC's most recent Quarterly Banking Profile, the number of problem institutions grew from 252 to 416 during the second quarter of 2009. Those 416 institutions have total assets of $299.8 billion.

See this related story on the latest FDIC estimate indicating that the DIF was in the red as of Sept. 30, 2009.

Updated December 1, 2009.