An independent agency of the U.S. government, the Federal Deposit Insurance Corporation (FDIC) was established by the Banking Act of 1933 to shore up public confidence after thousands of banks failed in the 1920s and 30s. Its most prominent role today is insuring bank accounts.
The FDIC does more than safeguard personal deposits. It also serves as the receiver—or custodian—of the property and rights of failed banks. Additionally, it regulates member institutions so that they adhere to fair banking practices. Finally, the FDIC’s authority extends only to banks; credit unions are governed by the NCUA.
The primary responsibilities of the FDIC are as follows:
What is FDIC Insurance?
FDIC insurance guarantees that customers will have timely access to their deposits in the event of a bank failure. Any bank that carries FDIC insurance is said to be FDIC-insured. The current limit of FDIC insurance coverage is $250,000 per depositor. The amount guaranteed has changed over the years and is adjusted for inflation and in response to major events. The actual amount insured may also vary based on the composition of your finances. We cover the limits of deposit insurance coverage in our guide.
If a member bank fails, insured deposits are either transferred to an acquiring institution or paid to depositors directly in the event of a full liquidation. The funds are usually accessible within one to two business days, but may take longer for large and complex financial institutions. Insured funds are paid out of the FDIC’s Deposit Insurance Fund (DIF).
The FDIC protects and preserves the DIF by:
- Collecting quarterly risk-based insurance premiums from insured institutions
- Monitoring the financial condition of insured institutions
- Collecting and publicizing banking data and statistics
- Reviewing insurance applications from new candidates
- Researching, assessing, and analyzing risks to the banking industry
All member premiums are deposited into the Deposit Insurance Fund (DIF). Acquired funds are invested in U.S. Treasury securities or held in cash. The DIF maintains a ratio of reserves to insured-bank deposits to ensure adequate coverage in the event of bank failures; the reserve ratio stood at 1.28% as of September 30, 2017.
The DIF is funded through a combination of quarterly insurance payments from member institutions and interest earnings from U.S. Treasury obligations. The DIF is currently valued at $90.5 billion and has been growing since 2009.
What are the Responsibilities of the FDIC?
The FDIC is the primary federal regulator for 92% of all FDIC-insured banks and thrift charters, including state-chartered banks and savings institutions that are not members of the Federal Reserve. Regardless of charter, all FDIC-insured member banks fall under some level of FDIC supervision. The FDIC also oversees certain institutions identified as critical to the proper functioning of the financial markets, typically with assets of more than $10 billion. The agency's responsibilities include:
- Ensuring FDIC-insured banks are financially stable and secure
- Protecting consumer rights and encouraging institutional investment in communities
- Requiring that large and complex institutions maintain a "living will" to ensure ease and timeliness of resolution if necessary
If it detects violations, the FDIC may use formal and informal enforcement measures, including litigation and administrative sanctions. Any systematic pattern of violations must also be reported to the Department of Justice.
For individual consumers, the FDIC investigates potential violations of consumer laws and regulations. If you have a complaint about an FDIC-supervised institution, you can follow the steps to file a formal complaint. The FDIC also maintains a toll-free call center for depositors and bankers who have questions.
Additionally, the FDIC reviews each institution’s record of investing in the communities they serve through the Community Reinvestment Act (CRA). Each bank is assigned a CRA rating based on its record of meeting the credit needs of its communities, including low-to-moderate income neighborhoods. Other legislation geared toward preventing discriminatory lending practices include the Home Mortgage Disclosure Act, the Fair Housing Act and the Equal Credit Opportunity Act; all of these fall under the FDIC’s jurisdiction.
What is FDIC Receivership Management?
FDIC Receivership management involves the timely and orderly restructuring or liquidation of a failed banking institution. The FDIC must ensure that failures of depository institutions are resolved quickly and efficiently, except in rare instances where doing so would damage the stability of the U.S. financial system.
When a member bank fails, the FDIC is appointed as "receiver," or custodian, of the bank's property and rights. This gives the FDIC the authority to resolve the failing institution as it sees fit. Primary goals in a resolution are as follows:
- Mitigate the DIF’s negative exposure to the receivership
- Investigate and resolve all recoveries in a fair and cost-effective manner
- Resolve institutions in a manner which complies with the law and promotes financial stability
First and foremost, the FDIC seeks to resolve everything in a manner most economical to the DIF while avoiding the use of taxpayer dollars. An exception may be made for large complex financial institutions, which might have far-reaching negative implications on the financial system.
In the event of a receivership, payment of all insured bank deposits will be prioritized by the FDIC. The agency will accomplish this by liquidating the assets of the failing bank, paying the insured funds directly from the DIF or, if necessary, drawing on a line of credit through the U.S. Treasury. No customer has ever lost his or her insured deposit since the FDIC’s inception in 1933.
What are the Benefits of the FDIC?
In summary, the FDIC:
- Fosters consumer confidence in the banking system
- Insures depositors against bank failures for at least $250,000 of their deposits
- Charges quarterly premiums and invests DIF funds for use against future bank failures
- Protects and educates consumers about unfair lending practices
- Monitors and regulates FDIC-insured banks and thrifts
- Administers the receivership of failing banks
Today, most major banking institutions are FDIC-insured; you can check whether a bank is on the list of FDIC members. Additionally, all of the banks that we research and recommend are FDIC-insured.