Federal Deposit Insurance Corporation

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Federal Deposit Insurance Corporation (FDIC) is a United States government corporation providing deposit insurance to depositors in U.S. commercial banks and savings institutions. The FDIC was created by the Banking Act of 1933, in response to the thousands of bank failures that occurred in the 1920s and early 1930s. The insurance limit was initially set at $2,500 per ownership category, and has since been increased several times; as of 2023, the insurance limit is $250,000 per depositor, per insured bank, for each account ownership category.

History

The FDIC was established in the wake of the Great Depression as a part of the New Deal program initiated by President Franklin D. Roosevelt. Its primary purpose was to restore trust in the American banking system; more than one-third of banks failed in the years before the FDIC's creation, and bank runs were common. The presence of the FDIC insurance has helped to stabilize the financial system by protecting depositors and ensuring the safety and soundness of the banking system.

Function

The FDIC insures deposits at banks and savings associations in the event of a bank failure. It is funded by premiums paid by member institutions and does not receive Congressional appropriations. The FDIC also examines and supervises certain financial institutions for safety and soundness, performs certain consumer-protection functions, and manages banks in receiverships.

Insurance Coverage

The FDIC covers all types of deposits received at an insured bank, such as savings accounts, checking accounts, money market deposit accounts, and certificates of deposit (CDs). It does not insure securities, mutual funds, or similar types of investments that banks and thrift institutions may offer.

Bank Failures and Resolution

When a bank fails, the FDIC usually arranges for a healthier bank to assume the insured deposits of the failed bank. If it cannot find a buyer, it pays insurance to the depositors up to the insurance limit. The FDIC also directly manages the resolution of failing banks, including the sale of assets and settlement of debts.

Impact and Criticism

The FDIC has played a crucial role in maintaining public confidence in the U.S. financial system. However, it has faced criticism for the moral hazard it potentially creates, as banks and their customers might take on greater risks knowing that deposits are insured. Additionally, the FDIC has been involved in debates over banking regulation and the extent of its authority in managing financial institutions.

See Also

• Banking Act of 1933
• Great Depression
• Bank failure
• Deposit insurance
• Financial regulation

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