en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en en
The FDIC has been in the news a lot in recent years, but during quieter times the agency and what it does are invisible to most Americans.
The closest we get to it is the sign in the bank window that says, “Member FDIC”.
The FDIC is sort of like a giant insurance company for the entire US banking industry (in fact it stands for the Federal Deposit Insurance Corporation).  The fact that we usually don’t know what it does is an indication that it’s doing the job it was meant to do.
The History of the FDIC
The FDIC was created under the Glass-Steagall Act in 1933 in the depths of the Great Depression.  Large numbers of banks were failing in the 1930’s and confidence in the entire banking system was going down as they did.  The FDIC was created in an effort to restore that confidence.
For most of its existence the FDIC has served its purpose well; the confidence it has created in the banking system has limited the number of banking crises to just two in the past 80 years: the savings and loan crisis of the late 1980’s, and the recent financial crisis.  And due largely to FDIC intervention, neither of those crises led to anything like the economic disaster that occurred during the Great Depression.
Like most government agencies, the FDIC has multiple functions, but the two that are most relevant to most people are deposit insurance and bank regulation.
This is what most of us know the FDIC for—the insurance they provide on our bank deposits.
The ceiling on that coverage, which started out as just $2,500 when the agency began, is now set at $250,000.  That limit covers checking accounts of all types, savings accounts, bank money market accounts, certificates of deposits and certain outstanding negotiable instruments.
What FDIC insurance does not cover: any of the above in excess of $250,000 in a single bank, non-bank money market accounts, investment securities (stocks, bonds, mutual funds, ETF’s, etc) or the contents of safe deposit boxes.
The $250,000 limit is per bank, which is to say that you’d get full coverage on $500,000 in deposits if you split them evenly between two unrelated banks.
How effective is FDIC deposit insurance?
Since the FDIC started, no depositor in the US has lost any money on insured bank deposits due to the failure of a bank.
The FDIC helps keep your money secure.
Prevention is the first line of defense against bank default (and the need to pay deposit insurance claims), and that’s why the FDIC has a powerful regulatory presence in the banking industry.
The FDIC monitors the health of banks based on largely on compliance with specified capital ratio requirements.  If a bank falls below the required capital ratio requirement, the FDIC has a set of remedies ranging from issuing a warning to the bank, all the way up to declaring the bank to be insolvent which enables the agency to take it over.
Because the FDIC continuously monitors the health of the banks we deal with, we don’t need to do it ourselves.  We can bank with confidence and know that our money and our transactions will be protected even if the bank is facing financial troubles.
The make up of the FDIC
The FDIC is set up as a government corporation.  That means that while it’s owned by the US government, it operates as an independent agency and maintains its own revenue sources.  The independent agency status is set up to minimize political interference.
The agency is governed by five board members, three of which are appointed by the president of the United States.
The FDIC provides deposit insurance out of reserves funded by premiums it collects from member banks.  Should that reserve prove insufficient, there is at least an implied guarantee by the US government to cover the shortfall.
Why we need the FDIC
Banking is part of the nation’s financial infrastructure, which is to say that it’s part of the overall national infrastructure in much the same way the interstate highway system and the electric power grid are.  The national economy—and our own individual personal economies—can’t exist without a sound banking system.
Something so important as the banking system has to be regulated and insured against failure, and that’s why we have (and need) the FDIC.  It has undergone an enormous test since large scale bank failures began in 2007 and it has passed.  The FDIC deposit insurance system worked so well that most people’s deposits were completely unaffected by the collapse of the banks that held them.
[Related: Online Checking Accounts You Should Look Into]
The FDIC works to keep bank failures from turning into bank runs and wholesale economic collapse.  That’s worth the premiums we’re paying to the agency through the banks.
It guarantees us that though we may lose money elsewhere, it won’t be at the banks.
Glen Craig is married and the father to four children that he spends the day chasing as a stay-at-home-dad. He took an interest in personal finance when he realized most of his paycheck was going toward credit card bills. Since then he's eliminated his credit card debt and started on a journey towards financial freedom.
August 2, 2012 at 9:30 am
I hope one day I get to the point where I have to have multiple bank accounts at different institutions to keep my money FDIC insured! Even if I don’t I am glad it exists otherwise I might have a ton of cash at home and that would he no good. All of my cash stays at the bank because it is safest there.
Andrew J. Calderon says
August 2, 2012 at 10:48 am
very nice and thanks for shearing.
August 2, 2012 at 2:15 pm
Thanks for sharing this very informative description of the FDIC. I used to work at a bank and none of my customers had a full understanding of what FDIC insurance really meant and whether or not it would cover them in an economic crisis. I wish I had this article then to print out and give to them!
JP @ My Family Finances says
August 4, 2012 at 7:07 am
This is a bit random, but I’ve always wanted a user review for the FDIC. I know depositors don’t tend to work with them directly, but I’ve never known anyone that has needed FDIC to replenish a withdrawal.
Just curious if anyone has ever banked where FDIC needed to step in and save there account. I know there much be someone out there since banks do fail.
August 4, 2012 at 11:55 am
The FDIC should be aboloshed. The insurance it provides creates a moral hazard for banks to engage in risky investments and loan too much money to unsuitable borrowers. All the while the taxpayer is left holding the bag when banks are bailed out. Banks should be responsible businesses and be held accountable for their investment decisions. If banks want to particiapte in a deposit insurance program, they should come up with their own program absent government involvement and do so voluntarily.
A Little About Me
I'm Glen Craig - I used to live paycheck-to-paycheck, drowning in credit card debt. I turned that all around and now I build wealth rather than debt.
My goal is to make personal finance easy for you.
Join our email list (FREE) and never miss an article!
Use Google Calendar To Pay Your Bills On Time
9 Things to Do When You Retire
Side Hustle-Make Extra Money Cleaning Homes
Four Ways You Can Pay Off Your Home Mortgage Faster
Don’t Forget Your 401(k) When You Leave Your Job! Here’s What You Can Do With It
Your 4 Step Guide on How to Stop Living Paycheck to Paycheck
What Is A Mortgage Escrow Account?
This is Why Your House Isn’t Selling – Here’s How to Finally Get Your House Sold
7 Ways to Get Rich Quick
What is Renter’s Insurance and Why You Need It
What Is a Probate Lawyer and When Would You Use One?
Money Market Account VS Savings Account – What’s the Difference?
Five Ways Fantasy Baseball is Like Personal Finance
Tools to Help Organize Your Taxes
Don't Let Your Goals Fizzle Out! - 5 Reasons Goals Fail, and What You Can Do To Make Yours Succeed
What Do You Think of New Year's Resolutions?
Tools to Improve Your Finances
Online High Yield Savings
All About Online Checking Accounts – Why Pay More Fees Than You Have To
Personal Capital Review - A One Stop Financial Center
Online Brokerages That Won't Break Your Bank
Credit Karma Review - Get Your Credit Score and More
Mortgage and Refinance Rates
Follow Us On Pinterest!
Follow Free From Broke's board Most RePinned and Popular {Free From Broke} on Pinterest.
Think Long Term When Shopping Black Friday and Cyber Monday
10 Essential Tips For Shopping Black Friday And Cyber Monday That Will Save You Money
How to Improve Your Credit Score Fast
What is a Refund Anticipation Loan (RAL) and is it Worth It?
Paying Taxes with a Credit Card: Pros and Cons
Free From Broke is for general information or entertainment purposes only and does not constitute professional financial advice. Be smart and do your own research or contact an independent financial professional for advice regarding your specific situation.
In accordance with FTC guidelines, we state that we have a financial relationship with companies mentioned in this website. This may include receiving access to free products and services for product and service reviews and giveaways.
© 2007–2022 Free From Broke A Personal Finance Blog For Regular Folks – All rights reserved.
No content on this site may be reused in any fashion without written permission from FreeFromBroke.com | Privacy Policy | Sitemap
Copyright © 2022 · Metro Pro on Genesis Framework · WordPress · Log in
We are using cookies to give you the best experience on our website.
You can find out more about which cookies we are using or switch them off in settings.
Go to mobile version
Close GDPR Cookie Settings
Powered by  GDPR Cookie Compliance
This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.
Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.
Enable or Disable Cookies
If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.