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Encyclopedia > Federal Deposit Insurance Corporation
The FDIC logo

The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation created by the Glass-Steagall Act of 1933. The vast number of bank failures in the Great Depression spurred the United States Congress into creating an institution which would guarantee banks, inspired by the Commonwealth of Massachusetts and its Deposit Insurance Fund (DIF). The FDIC provides deposit insurance which currently guarantees checking and savings deposits in member banks up to $100,000 per depositor. Image File history File links Size of this preview: 800 × 378 pixel Image in higher resolution (1961 × 926 pixel, file size: 65 KB, MIME type: image/png) The FDIC logo from their website. ... Image File history File links Size of this preview: 800 × 378 pixel Image in higher resolution (1961 × 926 pixel, file size: 65 KB, MIME type: image/png) The FDIC logo from their website. ... Two separate United States laws are known as the Glass-Steagall Act. ... The Great Depression was a time of economic down turn, which started after the stock market crash on October 29, 1929, known as Black Tuesday. ... Type Bicameral Houses Senate House of Representatives United States Senate Majority Leader Harry Reid, D since January 4, 2007 Speaker of the House Nancy Pelosi, D since January 4, 2007 Members 535 plus 4 Delegates and 1 Resident Commissioner Political groups (as of November 7, 2006 elections) Democratic Party Republican... This article or section does not cite any references or sources. ... Official language(s) English Capital Boston Largest city Boston Area  Ranked 44th  - Total 10,555 sq mi (27,360 km²)  - Width 183 miles (295 km)  - Length 113 miles (182 km)  - % water 13. ... The Deposit Insurance Fund (DIF) was created by the Commonwealth of Massachusetts, USA in response to the large number of Massachusetts bank failures during the Great Depression. ... Explicit Deposit insurance is a measure introduced by policy makers in many countries to protect deposits, in full or in part, in the event of a run on a bank or banks. ... A deposit account is an account at a banking institution that allows money to be held on behalf of the account holder. ...

In recent years, a new product called "CDARS" Certificate of Deposit Account Registry System, invented by a retired Comptroller of US Currency, allows customers to obtain $30 Million in FDIC insured deposits, by authorizing the customer's bank to make deposits in other FDIC insured banks.

The FDIC deals with insolvency/illiquidity in one of two ways:

  • Payoff Method, in which insured deposits are paid by the FDIC, which attempts to recover its payments by liquidating the receivership estate of the failed bank.
  • Purchase and Assumption Method, in which all deposits are assumed by an open bank, which also purchases some or all of the failed bank's assets.




During the Great Depression, Republican Senator Arthur Vandenberg and Democratic Representative Henry Steagall wanted to restore public confidence after a massive series of bank runs in early 1933 caused 4,004 banks to close, with an average of $900,000 in deposits. These banks were merged into stronger banks; many months later the depositors received about 85% of their money. The Great Depression was a time of economic down turn, which started after the stock market crash on October 29, 1929, known as Black Tuesday. ... The Republican Party, often called the GOP (for Grand Old Party, although one early citation described it as the Gallant Old Party) [1], is one of the two major political parties in the United States. ... Arthur Hendrick Vandenberg (March 22, 1884–April 18, 1951) was a Republican Senator from the state of Michigan who participated in the creation of the United Nations. ... The Democratic Party is one of two major political parties in the United States, the other being the Republican Party. ... Henry Bascom Steagall (1873-1943) was a United States Representative from Alabama. ...

In May, the U.S. House Banking and Currency Committee reported a bill to insure deposits 100 percent to $1,000,000, and after that on a sliding scale; it would be financed by a small assessment on the banks. However the U.S. Senate Banking Committee reported a bill that excluded banks that were not members of the Federal Reserve System. Senator Vandenberg rejected both bills because neither contained a ceiling on the guarantees. He proposed an amendment covering all banks beginning using a temporary fund and a $2,500 ceiling. It was passed as the Glass-Steagall Deposit Insurance Act in June with Steagall's amendment that the program would be managed by the new Federal Deposit Insurance Corporation. Led by Chicago banker Walter J. Cummings, Jr. the FDIC soon included almost all the country's 19,000 banking offices. Insurance started January 1, 1934. President Franklin D. Roosevelt was personally opposed to insurance because it would protect irresponsible bankers, but yielded when he saw Congressional support was overwhelming. As the second head of FDIC in early 1934 he appointed Leo Crowley, a Wisconsin banker who, Roosevelt soon discovered, was using the FDIC to cover his own embezzlements. After some anguish, Roosevelt kept Crowley on and hushed up the episode, which was first revealed in 1996.[1] Meeting of the House Financial Services Committee The United States House Committee on Financial Services (or House Banking Committee) oversees the entire financial services industry, including the securities, insurance, banking, and housing industries. ... The United States Senate Committee on Banking, Housing, and Urban Affairs has jurisdiction over matters related to banks and banking, price controls, deposit insurance, export promotion and controls, federal monetary policy, financial aid to commerce and industry, issuance of redemption of notes, currency and coinage, public and private housing, urban... Headquarters Washington, DC, USA Chairman Ben Bernanke Central Bank of United States Currency US dollar ISO 4217 Code USD Base borrowing rate 5. ... Walter J. Cummings Jr. ... January 1 is the first day of the calendar year in both the Julian and Gregorian calendars. ... 1934 (MCMXXXIV) was a common year starting on Monday (link will take you to calendar). ... FDR redirects here. ...

S&L and bank crisis of the 1980s

Federal deposit insurance received its first large-scale test in the late 1980s and early 1990s during the savings and loan crisis (which also affected commercial banks). The Savings and Loan crisis of the 1980s was a wave of savings and loan association failures in the United States in which over 1,000 savings and loan institutions failed in the largest and costliest venture in public misfeasance, malfeasance and larceny of all time. ...

The brunt of the crisis fell upon a parallel institution to the FDIC, the Federal Savings and Loan Insurance Corporation (FSLIC), created to insure savings and loan institutions (S&Ls, also called thrifts). Due to a confluence of events, much of the S&L industry was insolvent and many large banks were in trouble as well. The FSLIC became insolvent and, along with its insurance function, was merged into the FDIC. Thrifts are now overseen by the Office of Thrift Supervision, an agency that works closely with the FDIC and the Comptroller of the Currency. (Credit unions are insured by the National Credit Union Administration.) The primary legislative response to the crisis were the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and Federal Deposit Insurance Corporation Improvement Act of 1991. The Federal Savings and Loan Insurance Corporation (FSLIC) administered the deposit insurance for savings and loans in the United States. ... A savings and loan association is a financial institution which specializes in accepting savings deposits and making mortgage loans. ... A credit union is a co-operative financial institution that is owned, controlled and administered by its members. ... The National Credit Union Administration (NCUA) is the United States federal agency that charters and supervises federal credit unions and insures savings in federal and most state-chartered credit unions across the country through the National Credit Union Share Insurance Fund (NCUSIF), a federal fund backed by the full faith... The Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA) is a United States federal law enacted in the wake of the savings and loan crisis of the 1980s. ... The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), passed during the S&L crisis, strengthened the power of the Federal Deposit Insurance Corporation. ...

The cost to taxpayers of resolving the crisis has been estimated at $150 billion.

FDIC funds

On February 8, 2006, President George W. Bush signed The Federal Deposit Insurance Reform Act of 2005 (the Reform Act) into law. The Federal Deposit Insurance Reform Conforming Amendments Act of 2005 which the President signed into law on February 15, 2006, contains necessary technical and conforming changes to implement deposit insurance reform, as well as a number of study and survey requirements. Among the highlights of this law was merging the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) into a new fund, the Deposit Insurance Fund (DIF). This change was made effective March 31, 2006.

There were two separate FDIC funds; one was the Bank Insurance Fund (BIF), and the other was the Savings Association Insurance Fund (SAIF). The latter was established after the savings & loans crisis of the 1980s. The existence of two separate funds for the same purpose led to banks attempting to shift from one fund to another, depending on the benefits each could provide. In the 1990s, SAIF premiums were at one point five times higher than BIF premiums; several banks attempted to qualify for the BIF, with some merging with institutions qualified for the BIF in order to avoid the higher premiums of the SAIF. This drove up the BIF premiums as well, resulting in a situation where both funds were charging higher premiums than necessary.[2]

Then Chairman of the Federal Reserve Alan Greenspan was a critic of the system, saying that "We are, in effect, attempting to use government to enforce two different prices for the same item — namely, government-mandated deposit insurance. Such price differences only create efforts by market participants to arbitrage the difference." Greenspan proposed "to end this game and merge SAIF and BIF". However, the government was not responsive; the Deposit Insurance Funds Act of 1996 made a provision for merging the two funds, but this was not enacted.[3] The Federal Reserve System is headquartered in the Eccles Building on Constitution Avenue in Washington, DC. The Federal Reserve System (also the Federal Reserve; informally The Fed) is the central banking system of the United States. ... Alan Greenspan (born March 6, 1926) is an American economist and was Chairman of the Board of Governors of the Federal Reserve of the United States from 1987 to 2006. ... In economics and finance, arbitrage is the practice of taking advantage of a price differential between two or more markets: a combination of matching deals are struck that capitalize upon the imbalance, the profit being the difference between the market prices. ...

Insurance requirements

In order to receive this benefit member banks must follow certain liquidity and reserve requirements. Banks are classified in 5 groups according to their risk-based capital ratio:

  • Well capitalized: 10% or higher
  • Adequately capitalized: 8% or higher
  • Undercapitalized: less than 8%
  • Significantly undercapitalized: less than 6%
  • Critically undercapitalized: less than 2%

When a bank becomes undercapitalized the FDIC issues a warning to the bank. When the number drops below 6% the FDIC can change management and force the bank to take other corrective action. When the bank becomes critically undercapitalized the FDIC declares the bank insolvent.

FDIC insured items

FDIC insurance covers the following types of accounts:

Accounts at different banks are insured separately. One person could keep $100,000 in accounts at two separate banks and be insured for a total of $200,000. Also, accounts in different ownerships (such as beneficial ownership, trusts, and joint accounts) can be considered separately for the $100,000 insurance limit. The Federal Deposit Insurance Reform Act raised the amount of insurance for an Individual Retirement Account to $250,000. Includes demand deposits, ATS, NOW, and other checkable deposits. ... In the United States, a Negotiable Order of Withdrawal account (NOW account) is a deposit account that pays interest, on which checks may be written. ... In the United States, a Money Market Deposit Account is a bank deposit that is considered a savings account for some purposes, but upon which checks can typically be written, subject to certain restrictions. ... The passbook is the traditional document to keep track of earnings in a savings account Savings accounts are accounts maintained by commercial banks, savings and loan associations, credit unions, and mutual savings banks that pay interest but can not be used directly as money (by, for example, writing a cheque). ... A certificate of deposit or CD is, in the United States, a time deposit, a familiar financial product, commonly offered to consumers by banks, thrift institutions, and credit unions. ... A negotiable instrument is a specialised type of contract for the payment of money which is unconditional and capable of transfer by negotiation. ... The Federal Deposit Insurance Reform Act was a federal banking regulation law passed in 2005. ... It has been suggested that 401k_ira_matrix be merged into this article or section. ...

Non-FDIC insured items

Only the above types of accounts are insured. Some types of uninsured products, even if purchased through a covered financial institution, are:

  • Stocks, bonds, mutual funds, and money market funds.
  • Investments backed by the U.S. government, such as US Treasury securities
  • The contents of safe deposit boxes. Even though the word deposit appears in the name, under federal law a safe deposit box is not a deposit account - it's a well-secured storage space rented by an institution to a customer.
  • Losses due to theft or fraud at the institution. These situations are often covered by special insurance policies that banking institutions buy from private insurance companies.
  • Errors made in your accounts. In these situations, there may be remedies for consumers under state contract law, the Uniform Commercial Code, and some federal regulations, depending on the type of transaction.
  • Insurance and annuity products, such as life, auto and homeowner's insurance.

This article does not cite its references or sources. ... In finance, a bond is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity. ... The definition of a mutual fund is a form of collective investment that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities. ... Money funds (or money market funds, money market mutual funds) are mutual funds that invest in short-term debt instruments. ... Treasury securities are government bonds issued by the United States Department of the Treasury through the Bureau of the Public Debt. ... Safe deposit boxes inside a Swiss bank. ... Everyday instance of theft: the bike which fits on this wheel has disappeared. ... The Uniform Commercial Code (UCC or the Code) is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in 49 states (all except Louisiana) within the United States of America. ... Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. ... Annuity contracts are offered by organizations and individuals that may accumulate value and take a current value and pay it out over a period of years. ... Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insureds death. ... To meet Wikipedias quality standards, this article or section may require cleanup. ... Home insurance, or homeowners insurance, is an insurance policy that combines insurance on the home, its contents, and, often, the other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home. ...

Notes and references

  1. ^ Stuart L. Weiss; The President's Man: Leo Crowley and Franklin Tiny in Peace and War;; Southern Illinois University Press, 1996.
  2. ^ Sicilia, David B. & Cruikshank, Jeffrey L. (2000). The Greenspan Effect, pp. 96–97. New York: McGraw-Hill. ISBN 0-07-134919-7.
  3. ^ Sicilia & Cruikshank, pp. 97–98.

External links

  Results from FactBites:
Federal Deposit Insurance Corporation. The Columbia Encyclopedia, Sixth Edition. 2001-05 (255 words)
The corporation was established in 1933 to prevent a repetition of the losses incurred during the Great Depression when bankrupt banks could not return the money deposited in them.
The FDIC provides coverage for deposits in national banks, in state banks that are members of the Federal Reserve System, and in other qualified state banks.
Since 1989 the FDIC has supervised the Savings Association Insurance Fund, the agency that was created to provide coverage for savings and loan associations when the Federal Savings and Loan Insurance Corporation became insolvent.
  More results at FactBites »



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