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 currently guarantees checking and savings deposits in member banks up to $100,000 per depositor. Two separate laws are known as the Glass-Steagall Act. ... The Great Depression was a worldwide economic downturn, starting in 1929 and lasting through most of the 1930s. ... Congress in Joint Session. ... A bank is an institution that provides financial service, particularly taking deposits and extending credit. ... Official language(s) English Capital Largest city Boston Boston Area  Ranked 44th  - Total 10,555 sq. ... 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. ... Deposit may refer to: Finance A deposit is a specific sum of money taken and held on account, by a bank as a service provided for its clients. ...

History

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. It is an urban legend that millions of people lost their money in banks; rather, but most were forced to withdraw their deposits anyways so they could pay their bills. The total of all deposits in all 9,106 banks that suspended 1929-33 was $6.886 billion; losses to depositers were $1.336 billion or 19%. [Historical Statistics series X741-755] In May, the U.S. House Banking and Currency Committee reported a bill to insure deposits 100 percent to $10,000, 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 Cummings 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] The Great Depression was a worldwide economic downturn, starting in 1929 and lasting through most of the 1930s. ... 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 the two major political parties in the United States. ... Henry Bascom Steagall (1873-1943) was a United States Representative from Alabama. ... 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... 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 bank of the United States. ... 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. ...

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.

Insured deposits

(Some banks offer a form of savings instrument confusingly called a money market deposit account (MMDA); these are insured savings accounts, intended to compete with the uninsured money market funds offered by brokerages). 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. ... Money funds (or money market funds, money market mutual funds) are mutual funds that invest in short-term debt instruments. ...

While the basic federal insurance amount is $100,000, you can receive more than $100,000 of coverage if your funds are maintained in different ownership categories, according to the FDIC. For example, you can have coverage of up to $100,000 for your individual accounts at the bank, another $100,000 for your share of joint accounts at the same bank, and yet another $100,000 for your retirement accounts there.

Depositors can also protect more than $100,000 by dividing the money among different financial institutions, with no more than $100,000 in any of them. (As of 2006-04-01, retirement accounts such an IRA are insured up to $250,000.) In Financial economics, a financial institution acts as an agent that provides financial services for its clients. ... 2006 (MMVI) is a common year starting on Sunday of the Gregorian calendar. ... April 1 is the 91st day of the year (92nd in leap years) in the Gregorian calendar, with 274 days remaining. ... An Individual Retirement Account (or IRA) is a retirement plan account that provides some tax advantages for retirement savings in the United States. ...

What is insured by the FDIC

This is what is covered by FDIC insurance:

• Checking accounts, Negotiable Order of Withdrawal, also called NOW accounts (checking accounts that earn interest), and money market deposit accounts, also called MMDAs (savings accounts that allow a limited number of checks to be written each month.)
• Savings accounts that you can add to or withdraw from at any time.
• "Money market" accounts, essentially high-interest savings accounts (even though the name is similar to "money market funds" which are not insured)
• Certificates of deposit (CDs), which generally require you to keep funds in the account for a set period - the maturity.

Includes demand deposits, ATS, NOW, and other checkable deposits. ... In the United States, a Negotiable Order of Withdrawal account is an interest-bearing account 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. ... Savings deposits are accounts maintained by banks, savings and loan associations, credit unions, and mutual savings banks that pay interest but can not be used directly as money. ... 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. ...

What is not insured by the FDIC

This is what is not covered by FDIC insurance (even if such products are purchased through a covered financial institution):

• Stocks, bonds, mutual funds, and money market funds.
• Investments backed by the U.S. government, such as US Treasury securities (these are considered risk free, however, as are securities backed by governments of most other developed nations)
• 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. If you are concerned about the safety or replacement of items you put into a safe deposit box, ask your insurance agent whether your homeowner's or renter's insurance policy covers your safe deposit box against damage or theft.
• 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.

In financial terminology, stock is the capital raised by a corporation, through the issuance and sale of shares. ... 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). ... A mutual fund is a form of collective investment that pools money from many investors and invests the 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 bonds issued by the U.S. Treasury, and sold by the Federal Open Market Committee, or FOMC. They are the debt finance instruments of the Federal government, and are often referred to as treasuries. ... Safe deposit boxes inside a Swiss bank. ... Thief redirects to here. ... The Uniform Commercial Code (UCC) is one of the uniform acts that has been promulgated in attempts to harmonize the law of sales and other commercial transactions in the fifty state in the United States of America. ... Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of potential financial loss. ... An annuity (from Latin annus, a year), is an investment that provides a defined series of payments in the future in exchange for an up-front sum of money. ... It has been suggested that Life assurance be merged into this article or section. ... 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. ...

Deposit insurance in action

Federal deposit insurance received its first large-scale test in the late 1980s and early 1990s during the Savings and loan crisis, with mixed results. 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. ...

It was not the FDIC that was tested, but a parallel institution, the Federal Savings and Loan Insurance Corporation (FSLIC), created to insure savings and loan institutions (S&Ls). (Ordinary individuals in the U.S. do their personal banking at a commercial bank, savings and loan, savings bank, or credit union, usually unaware that these are distinct kinds of financial institution, providing virtually identical ranges of personal banking services but operating under different regulatory regimes).

S&Ls were intended to be (and for over a century were) thrift institutions whose primary lending activity was the extension of mortgages to finance homebuilding. In 1982, government regulations were changed to permit S&Ls a far wider range of investment opportunities. S&Ls promptly and enthusiastically took advantage of these opportunities, aware that the regulatory framework gave them significant protection against the consequences of bad decisions. This and other causes led to Savings and Loan crisis of the 1980s. By 1989 20% of S&Ls were hopelessly insolvent, 20% were marginal and 60% were sound. Thrifts include savings and loan associations, savings banks, and credit unions. ... A mortgage is a method of using property as security for the payment of a debt. ... 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. ...

To consumers in 1990, bank failures were ancient history—something they had heard of in a boring school lesson on the Depression, or something seen in a flickery old black-and-white documentary. (Intergenerational tradition had passed on a sense of unease about the stock market, but not about banks). In 1974 the failure of the Franklin National Bank due to fraud made headlines, at least in the financial section of the newspaper, but attracted little public notice. But in the late 1980s and early 1990s savings and loans began to fail on a large scale, and these were not isolated cases of mismanagement, but a systemic problem. The Great Depression was a worldwide economic downturn, starting in 1929 and lasting through most of the 1930s. ... Franklin National Bank, based in Franklin Square in Long Island, was once the United States 20th largest bank. ...

FSLIC was strained to the breaking point and, in fact, went bankrupt. Deposit insurance for S&Ls was hastily shored up by the government, which created new regulations and transferred S&L deposit insurance to a branch of the FDIC. In this sense, deposit insurance was a failure. The regulatory framework had not given FSLIC adequate reserves to make depositors whole.

On the other hand, deposit insurance itself and the way in which bank regulators managed bank failures was, from the point of view of bank depositors, a total success. S&L failures became so common that many ordinary people experienced them—but from their point of view it was almost a nonevent. Federal regulators would quietly arrange for the acquisition of insolvent institutions by solvent ones. Transitions in ownership were accomplished quietly and skilfully, usually over a weekend. A depositor might take his paycheck to the bank on Friday, and the familiar sign would still be over the door; when he came in to withdraw cash on Monday, he would see a new sign above the door, and bank personnel would hand him a reassuring leaflet. The insurance limit of $100,000 was far more than enough to protect the average depositor. Customers of failed S&Ls usually experienced only the most minor irritations, no different in degree or kind from the ones resulting from the wave of bank mergers and consolidations a decade later.

The S&L crisis made headlines and politicians made speeches about it, but unlike the bank failures of the depression, S&L failures remained an abstract problem, like the deficit or the balance of trade. No money was lost in FSLIC-insured savings accounts.

Criticisms of deposit insurance

Not all economists think that the FDIC is a good idea. The main fear of its critics is that the government will, for very large banks (which they consider "too big to be allowed to fail"), use the FDIC fund money to "bailout" a large bank, rather than letting it fail and paying the up to $100,000 amount per depositor. These economists believe that free market political decision making in this matter will lead to the best net result, and that there is not enough money to adequately use FDIC funds to "prop up" banks. Some advocate privatizing the FDIC insurance money, with the caveat of not allowing the "too big to fail" system. These critics mostly believe that the current FDIC insurance would fail as did the FSLIC, and would require a bailout from the government.

References

1. ^ Weiss 1996

• Bradley, Christine M. "A Historical Perspective on Deposit Insurance Coverage" FDIC BANKING REVIEW2000
• Bureau of the Census. Historical Statistics of the United States (1976)
• Carter Golembe, "The Deposit Insurance Legislation of 1933: An Examination of its Antecedents," Political Science Quarterly 75 (1960), 181-200
• George G. Kaufman; "FDIC Losses in Bank Failures: Has FDICIA Made a Difference?" Economic Perspectives, Vol. 28, 2004 pp13+
• Kennedy, Susan E. The Banking Crisis of 1933 (1973)
• Preston, Howard H. "The Banking Act of 1933". American Economic Review 23, no. 4 (1933) 585–607
• Stern, Gary H., and Ron Feldman, Too Big to Fail: The Hazards of Bank Bailouts Brookings Institution Press (2004)
• Stuart L. Weiss; The President's Man: Leo Crowley and Franklin Roosevelt in Peace and War;; Southern Illinois University Press, 1996.

See also

• Bank regulation
• Canada Deposit Insurance Corporation
• Deposit insurance
• Financial institution
• National Credit Union Administration
• Pension Benefit Guaranty Corporation
• It's a Wonderful Life

The banking industry are under certain regulations and requirements that aim to uphold the soundness and integrity of the financial system. ... Canadian Deposit Insurance Corporation or CDIC is a federal agency that provides insurance (up to a $60,000 CAD per personal and on Canadian accounts only) on financial services provided by chartered Canadian banks and financial institutions. ... Deposit insurance is a measure taken by banks in many countries to protect their clients savings, either fully or in part, against any possible situation that would prevent the bank from returning said savings. ... In Financial economics, a financial institution acts as an agent that provides financial services for its clients. ... 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 Pension Benefit Guaranty Corporation (or PBGC) is an independent agency of the United States government created by the Employee Retirement Income Security Act of 1974 (ERISA) to encourage the continuation and maintenance of voluntary private pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance... Its a Wonderful Life is a 1946 Frank Capra film, produced by his own Liberty Films, and released originally by RKO Radio Pictures. ...

External links

• FDIC official website.