Federal Deposit Insurance Corporation (FDIC)

The Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails.

An independent agency of the federal government, the FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure.

The FDIC receives no Congressional appropriations – it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. The FDIC insures more than $7 trillion of deposits in U.S. banks and thrifts – deposits in virtually every bank and thrift in the country.

The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

The FDIC insures deposits only. It does not insure securities, mutual funds or similar types of investments that banks and thrift institutions may offer. (Insured and Uninsured Investments distinguishes between what is and is not protected by FDIC insurance.)

The FDIC directly examines and supervises more than 4,900 banks and savings banks for operational safety and soundness, more than half of the institutions in the banking system. Banks can be chartered by the states or by the federal government. Banks chartered by states also have the choice of whether to join the Federal Reserve System. The FDIC is the primary federal regulator of banks that are chartered by the states that do not join the Federal Reserve System. In addition, the FDIC is the back-up supervisor for the remaining insured banks and thrift institutions.

The FDIC also examines banks for compliance with consumer protection laws, including the Fair Credit Billing Act, the Fair Credit Reporting Act, the Truth-In-Lending Act, and the Fair Debt Collection Practices Act, to name a few. Finally, the FDIC examines banks for compliance with the Community Reinvestment Act (CRA) which requires banks to help meet the credit needs of the communities they were chartered to serve.

To protect insured depositors, the FDIC responds immediately when a bank or thrift institution fails. Institutions generally are closed by their chartering authority – the state regulator, the Office of the Comptroller of the Currency, or the Office of Thrift Supervision. The FDIC has several options for resolving institution failures, but the one most used is to sell deposits and loans of the failed institution to another institution. Customers of the failed institution automatically become customers of the assuming institution. Most of the time, the transition is seamless from the customer’s point of view.

The FDIC employs more than 7,000 people. It is headquartered in Washington, D.C., but conducts much of its business in six regional offices, three temporary satellite offices and in field offices around the country.

The FDIC is managed by a five-person Board of Directors, all of whom are appointed by the President and confirmed by the Senate, with no more than three being from the same political party.

FDIC Mission, Vision, and Values

Mission

The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress to maintain stability and public confidence in the nation’s financial system by:

• insuring deposits,
• examining and supervising financial institutions for safety and soundness and consumer protection, and
• managing receiverships.

Vision

The FDIC is a recognized leader in promoting sound public policies, addressing risks in the nation’s financial system, and carrying out its insurance, supervisory, consumer protection, and receivership management responsibilities.

Values

The FDIC and its employees have a tradition of distinguished public service. Six core values guide us in accomplishing our mission:

Integrity

Adhere to the highest ethical and professional standards.

Competence

Highly skilled, dedicated, and diverse workforce that is empowered to achieve outstanding results.

Teamwork

Communicate and collaborate effectively with one another and with other regulatory agencies.

Effectiveness

Respond quickly and successfully to risks in insured depository institutions and the financial system.

Accountability

We are accountable to each other and to our stakeholders to operate in a financially responsible and operationally effective manner.

Fairness

Respect individual viewpoints and treat one another and our stakeholders with impartiality, dignity, and trust.

Board of Directors

 History

Emergency Banking Act of 1933
This act, which President Roosevelt signs on March 9, 1933:

• Legalizes President Roosevelt’s decision to declare a national banking holiday
• Permits the Office of the Comptroller of the Currency (OCC) to appoint a conservator with powers of receivership over all national banks threatened with suspension.

The Securities Act of 1933
This act requires strong disclosure statements of publicly held corporations, which deprives bankers of their monopoly on information.

The Banking Act of 1933

President Roosevelt signs this act on June 16, 1933, to raise the confidence of the U.S. public in the banking system by alleviating the disruptions caused by bank failures and bank runs.

From 1929 to 1933, bank failures resulted in losses to depositors of about $1.3 billion. Before the FDIC was in operation, large-scale cash demands of fearful depositors often struck the fatal blow to banks that might otherwise have survived.

Since the FDIC went into operation, bank runs no longer constitute a threat to the banking industry.

This act:

• Establishes the FDIC as a temporary government corporation
• Gives the FDIC authority to provide deposit insurance to banks
• Gives the FDIC the authority to regulate and supervise state nonmember banks
• Funds the FDIC with initial loans of $289 million through the U.S. Treasury and the FRB
• Extends federal oversight to all commercial banks for the first time
• Separates commercial and investment banking (Glass-Steagall Act)
• Prohibits banks from paying interest on checking accounts
• Allows national banks to branch statewide, if allowed by state law.

1934

• The FDIC deposit insurance goes into temporary effect on January 1, 1934. The deposit insurance level is $2,500.
• On July 1, 1934, the FDIC deposit insurance increases the coverage level to $5,000.
• The FDIC employs 3,476 people, most of whom are bank examiners.
• Nine FDIC-insured banks fail.
• Each state in the nation has an FDIC regional office.
• The prime rate emerges as the rate that banks use in lending to their biggest and best corporate customers. Demand for business loans is nil, and banks charge as little as one-third of 1 percent interest. Between 1934 and 1947, the prime rises to approximately 1.5 percent.
• The FDIC fund has a balance of $292 million.

1950

• The FDIC deposit insurance coverage level increases from $5,000 to $10,000.
• The FDIC’s insurance fund has a balance of $1.2 billion.

The Federal Deposit Insurance Act of 1950
This act:

• Revises and consolidates earlier FDIC legislation into one act
• Increases the insurance limit from $5,000 to $10,000
• Gives the FDIC the authority to lend to any insured bank in danger of closing, if the operation of the bank is essential to the local community
• Authorizes the FDIC to examine national and state-member banks to determine their insurance risk.

1960

• Only five banks are listed on any stock exchange.
• The FDIC’s insurance fund has a balance of more than $2 billion.
• The FDIC has about 3,000 employees: 2,500 bank examiners and 40 bank liquidators.
• Four FDIC-insured banks fail.

1966

• The FDIC deposit insurance limit increases to $15,000.
• Interest rates increase.
• The U.S. government borrows to cover war debt.
• The U.S. experiences economic growth because of the war economy.

1969

• The FDIC deposit insurance limit increases from $15,000 to $20,000.
• ATMs are installed in New York’s Chemical Bank; the installation marks the first use of magnetically encoded plastic.
• Wall Street processes about 20 million shares a day, with difficulty. Today, Wall Street processes several billion shares per day.

Depository Institutions Deregulation and Monetary Control Act of 1980
This act, which is passed as a response by Congress to get S&Ls out of interest- rate mismatch, is an effort to deregulate S&Ls.

This act:

• Begins the process of phasing out Regulation Q—or Reg Q—(the Federal Reserve’s regulation that dictates what banks and S&Ls can pay on deposits)
• Allows financial institutions to offer negotiable order of withdrawal (NOW) accounts (interest-bearing checking accounts)
• Allows S&Ls to offer checking–type accounts
• Establishes loan-loss-reserve requirements
• Allows S&Ls to issue credit cards
• Increases THE FDIC deposit insurance coverage from $40,000 to $100,000.

1984

• Continental Illinois National Bank in Chicago, Illinois, with $34 billion in assets, is the largest bank to ever fail in the FDIC’s history. The bank is weakened by its participations in Penn Square energy loans. Continental experiences a high-speed electronic bank run. Bank regulators are faced with a potential run on the bank and provide a $2 billion assistance package.

The FDIC promises to protect all of Continental’s depositors and other creditors, regardless of the $100,000 limit on deposit insurance. Continental receives assistance from the FDIC because it is deemed “too big to fail.” (In 1997, the estimated cost to the FDIC of resolving Continental was $1.1 billion.)

• For the first time, the FDIC spends more on resolving failures than it receives in premiums.
• 79 FDIC-insured banks with $3 billion in assets fail.
• The Federal Home Loan Bank Board (FHLBB) chairman testifies before the House Banking Committee, stating that an S&L crisis is imminent.
• The banking regulators individually publish new uniform capital standards.
• In response to a 1983 law, banking regulatory agencies set minimum capital requirement standards for individual institutions.

1985

• L. William Seidman becomes the chairman of the FDIC.
• 120 FDIC-insured banks with $8.7 billion in assets fail—the first time more than 100 banks fail in one year since the FDIC was created.

1986

• Real estate investments are less attractive because of overbuilding and the Tax Reform Act of 1986.
• A $15 billion attempt to recapitalize Federal Savings and Loan Insurance Corporation (FSLIC) fails in Congress. The next year, Congress authorizes $10.75 billion.
• Reg Q, the regulation that dictated what banks and S&Ls can pay in interest, is fully phased out in accordance with the 1980 law.
• 1,840 mutual funds control $716 billion in stock, bonds, and money market assets.
• 138 FDIC-insured banks with $7 billion in assets fail.

1990

• By year-end, the FDIC has 19,247 employees, including 4,899 RTC employees.
• 168 FDIC-insured banks fail.
• The RTC resolves 315 failed S&Ls.
• The FDIC insurance premiums increase from 8.3 cents to 12 cents per $100 of deposits. This is the first rate increase since the FDIC began operations in 1934.
• Mutual funds grow to $1.5 trillion from $250 billion in 1983, partly because of the exodus of deposits from banks and S&Ls.
• Iraq invades Kuwait, and the subsequent war between the U.S. and Iraq leads to higher oil prices, reduced consumption, and declining demand.

1991

• Two statutes provide the Resolution Trust Corporation (RTC) with $36.7 billion in additional funding.
• On January 1, the FDIC increases insurance premiums from 12 cents to 19.5 cents per $100 of deposits.
• On July 1, the FDIC increases premiums to 23 cents per $100 of deposits.
• By year-end, the FDIC’s Bank Insurance Fund (BIF) is insolvent by $7 billion.
• By year-end, the FDIC has 22,586 employees, including 8,614 RTC employees.
• FDIC monitors 1,090 problem banks with $609.8 billion in assets.
• 124 FDIC-insured banks with $63 billion in assets fail—one-third are in New England.
• The Office of the Comptroller of the Currency (OCC) declares the Bank of New England insolvent and appoints the FDIC receiver. Twenty percent of the bank’s loans are non-performing. The bank is considered “too big to fail,” and all depositors are protected—even those with a more than $100,000 insured limit. The General Accounting Office reports that the OCC failed to take timely and forceful supervisory action.

Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991
This act fixes problems not addressed in FIRREA. This act:

• Gives the FDIC authority to borrow $30 billion from the U.S. Treasury to help replenish the Bank Insurance Fund (BIF)
• Provides for a line-of-credit from the U.S. Treasury
• Directs the FDIC to apply risk-based insurance premiums. Before this, there was a statutorily mandated flat rate
• Puts significant restrictions on the designation of “too big to fail,” requiring approval of the President of the United States
• Requires the FDIC to close banks in a manner that is least costly to the BIF
• Requires that prompt corrective action be taken against banks based on their capital levels. Gives the FDIC authority to close depository institutions when capital levels fall below 2 percent
• Places new restrictions on the use of brokered deposits
• Requires banks to apply to the FDIC for deposit insurance independently of the chartering process
• Requires bank regulators to conduct annual safety-and-soundness examinations of all insured institutions—the healthiest institutions with less than $100 million in assets can extend this exam interval to every 18 months.

1992

• RTC requests additional funds to continue resolving the S&L crisis. Congress does not approve the funding.
• The Bank Insurance Fund (BIF) ends the year with a deficit balance of $101 million.
• The banking industry earns record profits of $32 billion for the year.
• For the first time since 1984, the FDIC receives more in premiums than it spends on bank failures.
• The Treaty of Maastricht is signed, which forms the European union.

1993

• Banks begin paying risk-based insurance premiums, replacing the flat-rate assessment system.
• Under the new risk-based premium plan, banks pay an average of 23.7 cents per $100 of deposits for insurance.
• The banking industry earns record profits of $43.1 billion.
• 41 FDIC-insured banks fail, the lowest number of failures in 12 years.

RTC Completion Act of 1993
This act:

• Provides final funding of $18 billion for the RTC
• Provides for the closure of the RTC and the transfer of its workload and employees to the FDIC

1994

• 13 FDIC-insured banks with $1.4 billion in assets fail.
• Banks set a new earnings record, with reported net income of $44.7 billion.
• The North American Free Trade Agreement (NAFTA) links the U.S., Canada, and Mexico into free trade, eliminating some tariffs and phasing out others.
• The Federal Reserve Board raises the discount rate six times during the year.
• Banks invest $19 billion in technology.
• Mergers and consolidations in the banking industry continue to increase; 550 banks are absorbed by mergers or consolidations.
• Only 50 new bank charters are issued, the fewest since 1943.
• The Bank Insurance Fund (BIF) grows to $21.8 billion.
• The FDIC electronically computes assessments and electronically collects premiums.

1995

• The RTC sunsets. Over its 6 1/2 years of existence, the RTC resolves 747 S&Ls with $403 billion in assets at a cost of $160 billion to the taxpayer.
• The FDIC lowers insurance premiums in on July 1.
• The FDIC launches its first public website in March.

1996

• The U.S. Supreme Court, siding with Citibank, rules that states may not regulate the fees charged by out-of-state credit card banks. The ruling is crucial for large, nationwide credit card issuers, many of whom have based their strategies on the ability to export fees into other states.
• Banks control $4.6 trillion in assets.
• More than 7,000 mutual funds control $3.7 trillion in stock, bonds, and money-market assets (compared with 1,840 mutual funds and $716 billion in 1986).
• Investors have $1.7 trillion in defined contribution retirement plans.
• The FDIC lowers premiums for the best-managed banks. More than 90 percent of the FDIC-insured banks pay nothing for deposit insurance.
• The FDIC recapitalizes SAIF with a one-time special assessment equal to $0.657/$100 of deposits (or 65.7 basis points).