The National Depositor Preference Law

Last August 10, Congress passed the Omnibus Budget Reconciliation Act of 1993 (OBRA93). Contained in this legislation was a provision that dramatically revised the priority of claims on failed depository institutions. The Act’s effect was to give depositors (and, by implication, the Federal Deposit Insurance Corporation [FDIC]) a superior, or preferred, claim on a failed bank’s assets relative to that of other general creditors. By doing so, Congress hoped to reduce the FDIC’s losses from bank failures. In fact, the Office of Management and Budget estimated that a national depositor preference law could cut the FDIC’s expected losses by $1 billion over the next five years.