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The Federal Deposit Insurance Corporation or FDIC is an independent agency of the federal government. Its mission is to preserve public confidence in the banking system by insuring or guaranteeing bank accounts. It is also charged with policing the banking industry and making sure that banks are able to meet their obligations.
In essence the FDIC’s basic job is to make sure that you can get your money when you go to your bank. It is supposed to stop banks from making obligations they cannot cover and to protect depositors from unscrupulous bankers.
Why There is an FDIC
The Federal Deposit Insurance Corporation was created in response to the numerous bank failures that occurred during the Great Depression of the 1930s. Millions of average people lost their life savings or the proceeds of their businesses because banks could not pay.
The situation produced “runs” on banks in which crowds of depositors would mob tellers in attempts to get their money. It also shut down the national economy because people were unable to do business with no banks. The FDIC was set up to keep the banking system operating and the national economy working.
How the FDIC Works
The FDIC insures and regulates most but not all banks in the United States. It also insures and regulates similar institutions such as savings and loans and credit unions. There are some banks that are not regulated or insured by the agency.
Generally the FDIC insures all accounts with $250,000 or less in them. Most bank accounts will be insured. You can to see if your accounts are insured and for how much by visiting the FDIC’s Electronic Deposit Insurance Estimator or EDIE. Something to remember is that the FDIC only insures accounts not investments.
All checking accounts, passbook and statement saving accounts, money market deposit accounts and certificates of deposit at FDIC insured banks with less than $250,000 in them are insured. In some cases such as the Great Financial Meltdown of 2008 the FDIC will insure larger accounts to protect the economy.
The FDIC will not insure bank issued investments including annuities, mutual funds, stocks, insurance polices and exchange traded funds. Some of these investments such as annuities are guaranteed by state governments or insurance companies.
Ensuring Solvency and Regulating Banks
Beyond insuring accounts the FDIC has the critical mission of ensuring bank solvency. This means that it makes sure banks have enough money or credit available to cover their obligations. That way when you write a check or make an electronic payment you can know that the money that’s supposed to be in your account is actually there.
In addition to ensuring solvency the FDIC is charged with enforcing federal laws and regulations that cover the banking industry. These include the Fair Credit Billing Act, the Fair Credit Reporting Act, the Truth in Lending Act and the Fair Debt Collection Practices Act.
If a bank is not solvent the FDIC can step in with one of two other agencies the Office of Thrift Supervision or the Comptroller of the Currency and take control of the bank. In such a situation the deposits and loans issued by the failed bank are turned over to another institution that the regulators find to sound. If you want to see if a bank has failed you can check the FDIC’s list of failed banks.
Interestingly enough the FDIC is not financed with tax money. Instead its operations are paid for entirely by fees paid by banks and their depositors.
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