Federal Deposit Insurance Corporation (FDIC)
Description
The Federal Deposit Insurance Corporation (FDIC) is a U.S. government agency that provides deposit insurance to depositors in American commercial banks and savings institutions. Established in 1933 in response to the thousands of bank failures during the Great Depression, the FDIC was created to restore and maintain public confidence in the U.S. banking system by insuring deposits.
Key Features:
- Deposit Insurance: The FDIC insures deposits up to $250,000 per depositor, per insured bank, for each account ownership category.
- Bank Supervision: It monitors and examines the financial health of member banks to ensure stability and public confidence in the financial system.
- Receivership: In the event of a bank failure, the FDIC acts as a receiver, managing the liquidation and repayment of depositor funds.
Examples:
- Insolvent Bank: Suppose First National Bank becomes insolvent and is unable to pay depositors wanting to withdraw their money. The FDIC steps in and pays each depositor the full principal amount, up to $250,000.
- Multiple Accounts: An individual has a savings account, a checking account, and a certificate of deposit (CD), each with different balances totaling $300,000 at an FDIC-insured bank. The individual will receive up to $250,000 in combined insurance on these accounts.
Frequently Asked Questions (FAQ):
Q1: What does the FDIC insure?
- Answer: The FDIC insures all types of deposits received at an insured bank, including savings accounts, checking accounts, money market deposit accounts, CDs, and more. However, it does not insure securities, mutual funds, or similar types of investments.
Q2: Are there any banks that are not covered by FDIC insurance?
- Answer: Yes, credit unions are not covered by FDIC insurance but are typically insured by the National Credit Union Administration (NCUA).
Q3: How is the FDIC funded?
- Answer: The FDIC is funded through premiums paid by participating banks and savings institutions for deposit insurance coverage and from earnings on its investments in U.S. Treasury securities.
Q4: Can the FDIC insure deposits over $250,000?
- Answer: Yes, deposits can be insured over $250,000 by structuring the accounts across different ownership categories, such as individual accounts, joint accounts, trust accounts, and retirement accounts.
Q5: What actions does the FDIC take to prevent bank failures?
- Answer: The FDIC performs regular examinations of financial institutions for regulatory compliance, sound banking practices, and financial policies to maintain stability and public confidence in the banking system.
Related Terms:
- Commercial Bank: A financial institution that accepts deposits, offers checking and savings account services, and makes various loans.
- Savings and Loan Association: A financial institution that specializes in accepting savings deposits and making mortgage and other loans.
- Receivership: The process whereby a receiver is appointed to administer the property, business, and the debt obligations of an insolvent institution.
- NCUA (National Credit Union Administration): An independent federal agency that supervises and insures federal credit unions.
- Deposit Insurance Fund (DIF): The fund maintained by the FDIC that holds the premiums collected from insured banks and savings institutions and covers depositor liabilities when a bank fails.
Online Resources:
References:
- Federal Deposit Insurance Corporation. “Fundamentals of Deposit Insurance: A Study Guide.” FDIC Study Guide
- Federal Deposit Insurance Corporation. “History of the FDIC”. FDIC History
Suggested Books for Further Study:
- “The Great Depression and the New Deal: A Very Short Introduction” by Eric Rauchway
- “The Bankers’ New Clothes: What’s Wrong with Banking and What to Do About It” by Anat Admati and Martin Hellwig
- “The Color of Money: Black Banks and the Racial Wealth Gap” by Mehrsa Baradaran
- “Manias, Panics, and Crashes: A History of Financial Crises” by Charles P. Kindleberger and Robert Z. Aliber
- “The Alchemists: Three Central Bankers and a World on Fire” by Neil Irwin
Real Estate Basics: Federal Deposit Insurance Corporation (FDIC) Fundamentals Quiz
### What is the primary purpose of the FDIC?
- [x] To insure deposits at commercial banks and savings institutions
- [ ] To regulate mortgage companies
- [ ] To approve loans and mortgages
- [ ] To oversee credit unions
> **Explanation:** The main role of the FDIC is to insure deposits held at commercial banks and savings institutions, thereby maintaining public confidence and stability in the financial system.
### Up to what amount does the FDIC insure deposits per depositor at each insured bank?
- [ ] $100,000
- [ ] $150,000
- [x] $250,000
- [ ] $500,000
> **Explanation:** The FDIC insures deposits up to $250,000 per depositor, per insured bank, for each account ownership category.
### Which of the following is NOT insured by the FDIC?
- [ ] Savings accounts
- [ ] Checking accounts
- [ ] Certificates of deposit (CDs)
- [x] Mutual funds
> **Explanation:** The FDIC does not insure securities, mutual funds, or similar types of investments, only deposits received at insured banks.
### When a bank becomes insolvent, who acts as the receiver?
- [ ] The bank's board of directors
- [ ] External auditors
- [x] FDIC
- [ ] U.S. Treasury
> **Explanation:** In the event of a bank failure, the FDIC acts as the receiver, managing the assets and repaying depositors.
### How does the FDIC raise funds to support its deposit insurance?
- [ ] Through taxpayer money
- [ ] Through donations
- [x] Through premiums paid by insured banks and from earnings on investments
- [ ] Through issuing bonds to the public
> **Explanation:** The FDIC is funded by premiums that insured banks and savings institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities.
### Which year was the FDIC established?
- [ ] 1913
- [ ] 1929
- [x] 1933
- [ ] 1945
> **Explanation:** The FDIC was established in 1933 as a response to the bank failures that occurred during the Great Depression.
### What is the FDIC's role in the event of a bank failure?
- [ ] Selling off the bank's assets to the highest bidder
- [x] Paying off depositors up to the insured limit and managing the liquidation process
- [ ] Absorbing the failed bank into the federal reserve system
- [ ] Assisting the bank to recover financially
> **Explanation:** In the event of a bank failure, the FDIC pays off depositors up to the insured limit and manages the liquidation process of the bank's assets.
### Can deposits be insured over $250,000 by the FDIC?
- [ ] No, deposits cannot exceed $250,000 in insurance under any circumstances
- [x] Yes, by structuring accounts in different ownership categories
- [ ] Yes, but only for businesses, not individuals
- [ ] Yes, through a special high-deposit insurance program
> **Explanation:** Deposits can be insured over $250,000 by structuring the accounts across different ownership categories such as individual accounts, joint accounts, trust accounts, etc.
### Which agency insures deposits at credit unions instead of the FDIC?
- [ ] Federal Reserve
- [x] National Credit Union Administration (NCUA)
- [ ] Federal Home Loan Bank
- [ ] Office of the Comptroller of the Currency (OCC)
> **Explanation:** The National Credit Union Administration (NCUA) insures deposits at credit unions instead of the FDIC.
### What type of account is NOT covered by FDIC insurance?
- [ ] Money market deposit account
- [ ] Certificate of Deposit (CD)
- [x] Brokerage account holding stocks
- [ ] Interest-bearing checking account
> **Explanation:** FDIC insurance does not cover brokerage accounts that hold stocks or other securities, but it does cover typical deposit accounts such as savings, checking, and money market deposit accounts.
