Federal Deposit Insurance Corporation (FDIC) in the United States

Introduction to Federal Deposit Insurance Corporation

Federal Deposit Insurance Corporation (FDIC), independent agency of the United States government created in 1933 under a section of the Federal Reserve Act to insure deposits in banks in the event of bank failure. In 1950 the section of the act concerning the corporation was amended and made a separate law, the Federal Deposit Insurance Act. The act provides up to $100,000 insurance for each depositor in an insured bank. A new set of amendments to the act, which went into effect in April 2006, provides insurance up to $250,000 on individual retirement accounts (IRAs) held at banks and savings associations insured by the FDIC and at credit unions insured by the National Credit Union Administration (NCUA).

All banks that meet the standards for membership in the Federal Reserve System automatically become insured by the corporation; included are national banks chartered by the comptroller of the currency under federal law and state-chartered banks that obtain membership in the system. State-chartered banks, including mutual savings institutions that are not members, may become insured if they meet the prescribed qualifications for insurance.

In 1989 the Financial Institutions Reform, Recovery, and Enforcement Act abolished the Federal Savings and Loan Insurance Corp. (FSLIC) and transferred its functions to the FDIC. The FDIC now administers two separate deposit insurance funds: the Bank Insurance Fund for commercial banks and the Savings Association Insurance Fund for thrift institutions formerly insured by FSLIC.

The major functions of the corporation are to pay the depositors if an insured bank closes without adequate resources to pay claims of its depositors; to act as receiver for all suspended national banks and for suspended state banks if state authorities so request; and to prevent the development or continuance of unsound banking practices. The corporation may also make loans to or purchase assets from insured banks to facilitate a merger or consolidation if such action will prevent or reduce loss to the corporation or if the continued operation of a distressed bank is deemed essential to provide adequate banking services in a community. The corporation also regularly examines insured banks that are not members of the Federal Reserve System and prescribes rules governing the payment and advertising of interest on deposits.

The most recent changes to the Federal Deposit Insurance Act raised the insurance amount from $100,000 to $250,000 for an IRA account and for other types of retirement accounts. Other types of accounts are self-directed Keogh accounts, “457 Plan” retirement accounts used by state government employees, and self-directed 401(k) accounts (see Retirement Plans). All IRA accounts were covered by these changes, including traditional and Roth IRAs. These changes went into effect on April 1, 2006. Under the new rules, all deposits at the same FDIC-insured bank or NCUA-insured credit union that are held in these types of retirement accounts are insured up to $250,000. This amount is separate from other deposit accounts held at the same institution, which are still insured up to $100,000.

The IRAs must be invested in bank deposits, such as certificates of deposit (CDs). The FDIC does not insure mutual funds, stocks, bonds, or annuities sold through banks or savings associations.

The new changes also established a method for considering increases in insurance limits on all deposit accounts. Beginning in 2011, the FDIC will consider raising insurance limits every five years. The considerations will be based, in part, on the rate of inflation.

The FDIC is managed by a five-member board of directors. All are appointed by the president and confirmed by the Senate. No more than three can be from the same political party. The FDIC is headquartered in Washington, D.C., and has six regional and field offices around the country.” (1)

More Information

The Federal Deposit Insurance Corporation preserves and promotes public confidence
in U.S. financial institutions by insuring bank and thrift deposits, periodically
examining State-chartered banks, and liquidating assets of failed institutions.

The Federal Deposit Insurance Corporation (FDIC) was established under
the Banking Act of 1933 after numerous banks failed during the Great Depression.
FDIC began insuring banks on January 1, 1934. The deposit insurance coverage
on certain retirement accounts at banks or savings institutions is $250,000.
The basic insurance coverage for other deposit accounts is $100,000.

The FDIC is managed by a five-person Board of Directors, all of whom
are appointed by the President and confirmed by the Senate, with no more
than three being from the same political party.

FDIC receives no Congressional appropriations. It is funded by insurance
premiums on deposits held by insured banks and savings associations and
from interest on the investment of those premiums in U.S. Government securities.
FDIC has authority to borrow up to $30 billion from the Treasury for insurance
purposes.

Activities

The FDIC insures about $7 trillion of U.S. bank and thrift deposits. The insurance
fund is composed of insurance premiums paid by banks and savings associations
and the interest on the investment of those premiums in U.S. Government
securities, as required by law. Premiums are determined by an institution’s level
of capitalization and potential risk to the insurance fund.

The FDIC examines about 5,250 State-chartered commercial and savings
banks that are not members of the Federal Reserve System, called State
nonmember banks. The FDIC also has authority to examine other types of FDIC-insured institutions for deposit insurance purposes. The two types of
examinations conducted are for safety and soundness and for compliance
with applicable consumer laws such as the Truth in Lending Act, the Home
Mortgage Disclosure Act, the Equal Credit Opportunity Act, the Fair Housing
Act, and the Community Reinvestment Act. Examinations are performed on the
institution’s premises and off-site through computer data analysis.

A failed bank or savings association is generally closed by its chartering
authority, and the FDIC is named receiver. The FDIC is required to
resolve the closed institution in a manner that is least costly to the FDIC.

Ordinarily, the FDIC attempts to locate a healthy institution to acquire the
failed entity. If such an entity cannot be found, the FDIC pays depositors the
amount of their insured funds, usually by the next business day following
the closing. Depositors with funds that exceed the insurance limit often
receive an advance dividend, which is a portion of their uninsured funds
that is determined by an estimate of the future proceeds from liquidating
the failed institution’s remaining assets. Depositors with funds in a failed
institution that exceed the insurance limit receive a receivership certi?cate
for those funds and partial payments of their uninsured funds as asset
disposition permits.

As part of its insurance, supervisory, and receivership responsibilities,
the FDIC approves or disapproves of mergers, consolidations, and
acquisitions where the resulting bank is an insured State nonmember; approves
or disapproves of proposals by banks to establish and operate a new branch,
close an existing branch, or move its main office from one location to
another; and approves or disapproves of requests to engage as principal in
activities and investments that are not permissible for a national bank.

It also issues enforcement actions, including cease-and-desist orders, for
specific violations or practices requiring corrective action and reviews changes
in ownership or control of a bank.

For further information on the Offce of Public Affairs, Federal Deposit Insurance Corporation, see fdic.gov.

Legal Materials

The FDIC has insures bank deposits, regulates banks and manages receiverships. The FDIC Web site posts information about the FDIC, the FDIC’s Rules and Regulations, a tremendous amount of banking data and statistics, banking news, information on assets the FDIC has for sale, etc. (www.fdic.gov). For questions not answered on the Web site, call the FDIC’s Public Information Center — or get more numbers from the Contacts page.

Agency Guidance: FDIC Advisory Opinions, Statements of Policy and General Counsel’s Opinions are posted on the FDIC Web site (www.fdic.gov) and may also be published in the Federal Register. FDIC Statements of Policy back to 1980 are searchable on Lexis (BANKING;FDICSP). Selected FDIC Advisory Opinions, Letters and Orders are published in CCH’s Federal Banking Law Reporter. Westlaw has databases for FDIC Merger Decisions (FFIN-FDICMD), Financial Institution Letters (FFIN-FDICFIL), Enforcement Decisions (FFIN-FDICED), and a combined database for all the available FDIC decisions and letters (FFIN-FDIC).

Bank Sales: The TFDS (formerly SDC) Worldwide Mergers and Acquisitions database provides information about FDIC sales of failed banks. The TFDS database is available on Lexis (COMPNY;SDCMA).

Handbooks and Manuals: The FDIC posts its Compliance Examination Manual, Credit Card Activities Manual, Trust Examination Manual and other useful materials. Some FDIC handbooks and manuals are available on Lexis, including the Compliance Examination Manual (BANKNG;FDICCM) and the Trust Examination Manual(BANKING;FDICTM).

Note: The Formal and Informal Action Procedures Manual (“FIAP Manual“) is an internal FDIC publication, not regularly made available to the public. I received a copy in 2009 by filing a FOIA request with the FDIC.

Federal Deposit Insurance Corporation (Banking Law)

This section introduces, discusses and describes the basics of federal deposit insurance corporation. Then, cross references and a brief overview about Banking Lawin relation to federal deposit insurance corporation is provided. Note that a list of bibliography resources and other aids appears at the end of this entry.

Federal Deposit Insurance Corporation

In Legislation

Federal Deposit Insurance Corporation in the U.S. Code: Title 12, Chapter 16

The current, permanent, in-force federal laws regulating federal deposit insurance corporation are compiled in the United States Code under Title 12, Chapter 16. It constitutes “prima facie” evidence of statutes relating to Banking Law (including federal deposit insurance corporation) of the United States. The reader can further narrow his/her legal research of the general topic (in this case, Credit Institutions of the US Code, including federal deposit insurance corporation) by chapter and subchapter.

Federal Deposit Insurance Corporation

In Legislation

Federal Deposit Insurance Corporation in the U.S. Code: Title 12, Chapter 3, Subchapter V

The current, permanent, in-force federal laws regulating federal deposit insurance corporation are compiled in the United States Code under Title 12, Chapter 3, Subchapter V. It constitutes “prima facie” evidence of statutes relating to Banking Law (including federal deposit insurance corporation) of the United States. The reader can further narrow his/her legal research of the general topic (in this case, Federal Reserve System of the US Code, including federal deposit insurance corporation) by chapter and subchapter.

Resources

Notes and References

• Information about Federal Deposit Insurance Corporation in the Encarta Online Encyclopedia

See Also

Banks
Banking
Federal Register
Federal Reserve System

Guide to Federal Deposit Insurance Corporation

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Federal Deposit Insurance Corporation (fdic) in the International Business Landscape

Definition of Federal Deposit Insurance Corporation (fdic) in the context of U.S. international business and public trade policy: Federal body established to promote and preserve public confidence in banks and to protect the money supply through the provision of insurance coverage for bank deposits.