What is the FDIC?

FDIC stands for Federal Deposit Insurance Corporation, an independent agency of the federal government that regulates more than 4,900 banks in the US, totaling an estimated $7 trillion US Dollars (USD) worth of deposits. The purpose of the corporation is to maintain public confidence in the banking system and to help keep the system stable; this is achieved by providing insurance to depositors and by taking pre-emptive measures to minimize bank failures. The insurance grants depositors up to $250,000 USD worth of insurance money for their savings and checking deposits should their insured bank fail; this number was increased from $100,000 USD in 2008. While deposit money is insured, investments, such as mutual funds and stocks, are not. Most member banks, or banks that are insured by the corporation, proudly post emblems proclaiming their FDIC membership in conspicuous locations in each branch.

The FDIC is funded entirely by member banks who must meet specific liquidity and reserve requirements. Examiners regularly visit banks throughout the country to ensure that banks are complying with the established guidelines. Whenever a bank fails to meet the required guidelines, the FDIC issues a warning. If problems persist, the corporation has the authority to change the bank's management or force the bank to take other corrective actions.

A board of directors usually meets one time a month to review the corporation's activities and to discuss any problems that may exist. The board is made up of five members, three of whom are appointed by the President of the United States and agreed upon with the US Senate. Members usually serve a six year term, and only up to three members of the same political party may be allowed on the board.

In the 1920s and early 1930s, the US banking system was plagued with thousands of failures and many Americans became weary of making deposits. In 1933, Congress passed the Banking Act of 1933, more commonly known as the Glass-Steagall Act, which established the FDIC, and on 1 January 1934, the corporation began its operations.

The FSLIC (Federal Savings and Loan Insurance Corporation) was similar to the FDIC insofar as it regulated financial institutions, but it focused specifically on insuring savings and loan associations (S&Ls), which are financial institutions that specialize in taking deposits from and loaning money to the general public. A significant number of S&Ls ran into financial difficulty in the 1980s, which effectively bankrupted the FSLIC. The FDIC assumed the role of insuring deposits for any of the S&Ls that survived.

In 2008, due to an economic crisis, the US had 25 banks taken over by the FDIC. Since that time, the corporation played a large role in helping banks survive the crisis; unfortunately, not all banks were saved. In 2009, a total of 140 banks became insolvent, or unable to pay their debts, followed by hundreds more in 2010. The economic crisis and subsequent bank failures have cost the corporation in the billions of US dollars.