What is the Federal Deposit Insurance Corporation?

The Federal Deposit Insurance Corporation (FDIC) is an American government corporation that insures monies in the accounts of bank patrons, examines and supervises the banking industry, and handles bank failures. Created during the Great Depression, the FDIC was put into place as one of United States President Franklin Roosevelt’s New Deal agencies. He designed it to protect the earnings and savings of American citizens and encourage the stability of the banking industry as a whole.

The Federal Deposit Insurance Corporation is generally viewed as the federal government’s way of solidifying public trust in using the banking system. After the 1929 stock market crash, many Americans withdrew cash deposits from struggling banks, contributing to some 9,000 bank failures. Lawmakers like Senator Carter Glass and Representative Henry Steagall helped enact the Banking Act of 1933, also known as the Glass-Steagall Act. This act set commercial banking apart from the stock market and empowered agencies like the Federal Deposit Insurance Corporation and the Federal Reserve to oversee banking. By instituting insurance on funds deposited in banks, the FDIC helped put a stop to what was customarily called a “run on the bank.”

As of 2010, the FDIC insures deposits up to $250,000 US Dollars (USD) per account in banks under its jurisdiction. This insurance covers only savings and checking accounts. The FDIC does not guarantee monies in investments, like mutual funds or securities, though it does insure certificates of deposit (CDs).

The Federal Deposit Insurance Corporation is responsible for screening and inspecting new and existing banks. Before the FDIC was created, banks were typically inspected by state agencies on a need-only basis in cases of imminent bank failure or suspected criminal activity. After the Banking Act of 1933, regular admission and ongoing inspections were generally required.

When a bank fails, it typically goes into receivership. The FDIC becomes the legitimate receiver and begins restructuring the bank. Sometimes this entails selling the bank in total to another bank, but it can also mean selling off portions of the failed bank, like property, loans, even bank furniture, piecemeal. Bank patrons are usually unaware that their bank has failed until they are notified that their financial institution has a new name.

The FDIC is funded by premiums paid by banks and other financial institutions, not by taxpayer dollars. With 6,000 employees, this government corporation is headquartered in Washington, DC, and has nationwide field offices answering to six regional agencies. It is overseen by a Senate-approved board of directors made up of five bipartisan members appointed by the President of the United States.