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Federal Deposit Insurance Corporation (FDIC)
3 Key Takeaways
Copy link to section- The FDIC insures deposits at member banks up to $250,000 per depositor, per bank, ensuring that customers do not lose their money if the bank fails.
- It was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s during the Great Depression.
- Besides providing insurance, the FDIC also supervises and examines banks to ensure they operate safely and soundly, and manages receiverships of failed banks.
What is the Federal Deposit Insurance Corporation (FDIC)?
Copy link to sectionThe Federal Deposit Insurance Corporation (FDIC) is a U.S. government agency established under the Banking Act of 1933 to restore trust in the American banking system. The FDIC provides insurance coverage for depositors in insured banks, covering all types of deposits received at an insured bank, including savings accounts, checking accounts, and certificates of deposit (CDs).
The primary mission of the FDIC is to protect depositors by maintaining stability and public confidence in the nation’s financial system. By insuring deposits, the FDIC aims to prevent the kind of widespread bank runs that were common during the Great Depression, where anxious depositors withdrew their money en masse, causing even more banks to fail.
Importance of the FDIC
Copy link to section- Deposit Protection: Insures deposits up to $250,000 per depositor, per insured bank, giving customers peace of mind that their money is safe.
- Financial Stability: Helps prevent bank runs by assuring the public that their deposits are secure, thereby maintaining confidence in the banking system.
- Bank Supervision: Supervises and regulates banks to ensure they operate in a safe and sound manner, reducing the risk of failure.
How the FDIC Works
Copy link to sectionDeposit Insurance
The FDIC provides insurance for deposits at member banks. When a bank joins the FDIC, it must meet specific requirements and comply with regulations designed to ensure its safety and soundness. If an FDIC-insured bank fails, the FDIC pays depositors the insured amount of their deposits, up to the insurance limit. This coverage includes:
- Single Accounts: Insured up to $250,000 per owner.
- Joint Accounts: Insured up to $250,000 per co-owner.
- Retirement Accounts: Certain retirement accounts, such as IRAs, are insured up to $250,000.
Bank Supervision and Examination
The FDIC monitors and examines banks to ensure they follow sound banking practices. It assesses the financial condition of banks, their management practices, and compliance with laws and regulations. This supervision helps prevent bank failures and protects the deposit insurance fund.
Resolution of Failed Banks
When a bank fails, the FDIC steps in to manage the bank’s assets and liabilities. This can involve finding another institution to take over the failed bank’s operations or liquidating the bank’s assets to pay off its debts. The goal is to minimize disruptions to the banking system and protect depositors.
Examples of the FDIC
Copy link to section- Deposit Insurance Claims: If a bank fails, the FDIC ensures that depositors receive their insured funds promptly, up to the $250,000 limit. For example, when Washington Mutual failed in 2008, the FDIC facilitated the transfer of its deposits to JPMorgan Chase, ensuring depositors did not lose their money.
- Supervision and Regulation: The FDIC conducts regular examinations of member banks to ensure they adhere to safe banking practices and comply with relevant laws. This helps maintain the overall health of the banking sector.
- Public Confidence: By providing deposit insurance, the FDIC helps maintain public confidence in the U.S. banking system, reducing the likelihood of bank runs and financial panic.
Real World Application
Copy link to section- Bank Failures: During the 2008 financial crisis, the FDIC played a crucial role in managing the fallout from numerous bank failures. It ensured that insured depositors were protected and facilitated the orderly resolution of failed banks.
- Consumer Protection: The FDIC’s educational programs help consumers understand the limits of deposit insurance and how it protects their money. This includes initiatives like the “FDIC Money Smart” program, which promotes financial literacy.
- Regulatory Framework: The FDIC works with other federal and state regulatory agencies to strengthen the regulatory framework for banks, contributing to the overall stability of the financial system.
More definitions
Sources & references

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