Federal Deposit Insurance Corporation (FDIC)

What Is Federal Deposit Insurance Corporation (FDIC)? 

This is a Federal Government Agency that insures bank deposits. The FDIC was created by the Federal Deposit Insurance Act in 1933 as part of President Roosevelt’s New Deal. In order to protect investors from financial losses from banks going bankrupt, the Federal Deposit Insurance Corporation was created. The FDIC insurance fund protects deposits at more than 8,200 participating banks and savings associations throughout the country. Federal Deposit Insurance Corporation (FDIC) insurance covers bank deposits of up to $250,000 per person, per FDIC-insured bank.

History of Federal Deposit Insurance Corporation 

The FDIC was established by the Banking Act of 1933. This legislation replaced individual state systems with a single Federal system that would protect all deposit accounts through an insurance fund managed jointly by FDIC and Federal Reserve System.  Before the Federal Deposit Insurance Act, depositors at failed banks as well as those considering opening accounts were wary of losing their money due to bank failure. Over time, many people began moving their deposits from state banks to Federal Reserve Banks for better protection. This led to a decrease in Federal Reserve Bank deposits that they had to sell Federal debt issues to local banks. They made up for these losses by selling Federal securities, which led to changes in the monetary system and Federal Reserve System policy.  The Federal Deposit Insurance Corporation was formed as an independent agency of the Federal Government. FDIC insures accounts that are protected by Federal Deposit Insurance Corporation.  Federal Deposit Insurance Corporation is responsible for protecting the depositors of banks and Federal savings associations. It guarantees depositors their money even if a Federal depository institution fails. Likewise, it assures Federal depository institutions’ assets are protected against loss due to failure.

Functions of FDIC

The FDIC provides deposit insurance which guarantees the safety of funds deposited in FDIC-insured banks and savings associations. It also examines and supervises certain financial institutions for safety and soundness, performs certain consumer-protection functions, and manages receiverships of failed banks. Moreover, Federal Deposit Insurance Corporation promotes public awareness of the importance of Federal deposit insurance by communicating with depositors and financial institution customers, issuing publications, and holding seminars. In addition, the Federal Deposit Insurance Corporation supervises banks for compliance with consumer-protection laws and regulations. It works directly with banks to correct problems that may arise in order to ensure safe and sound banking practices.  FDIC provides support for the Federal financial institution system, including lending funds when needed by the Federal Reserve System, the Federal depository institutions regulatory agencies, Federal home loan banks, and Federal Housing Finance Agency.

Types of Accounts Insured by the FDIC

There are several accounts insured by the FDIC, these are: 

  • Checking Accounts
  • Savings Accounts
  • Money Market Deposit Accounts (MMDAs), and 
  • Certificates of Deposit (CDs). 

All Federal Depository Banks provide deposit insurance. Federal depository institutions include state-chartered banks insured by the FDIC.

FDIC Unregulated Non Bank Depositors

Federal Deposit Insurance Corporation does not regulate Non Bank deposit takers such as:

  • Credit unions
  • Insurance companies
  • Mortgage lenders
  • Brokers
  • Corporations that act like banks in lending money to the public
  • Federal savings associations
  • Federal credit unions
  • Federal Home Loan Banks
  • Federal Intermediate Credit Banks
  • National Credit Union Administration Central Liquidity Facility
  • Federal Home Loan Bank Board System Liquidating Corporation
  • Federal Agricultural Mortgage Corporation, or any other financial institution.

How FDIC Operates

Federal Deposit Insurance Corporation operates mainly in one way: Banks pay premiums based on their FDIC-asset ratios. Federal Reserve Banks collect the premiums and keep them in an insurance fund.  The FDIC uses this money to pay bank depositors when banks fail. They also collect fees based on the volume of checks each institution writes along with assessment fees, mainly from commercial banks that can afford it. 

How FDIC Protects Depositors

Federal Deposit Insurance Corporation is one of several Federal agencies that share responsibility for stabilizing the nation’s financial system and protecting depositors’ funds.  It preserves and promotes public confidence in the Federal deposit insurance system by insuring depositors’ funds against loss due to insolvency of FDIC-insured banks.  Federal Deposit Insurance Corporation reimburses depositors for their losses up to coverage limits if there are sufficient funds in the FDIC’s general insurance fund.  They also work with Federal agencies to monitor the financial system, identify risks to it, and promote its safety and soundness. FDIC also works with Federal bank regulatory agencies to monitor banking practices. 

How to File a Claim in FDIC

To file a claim with Federal Deposit Insurance Corporation, you need to follow Federal Deposit Insurance Corporation instructions which are available on their website: (https://www.fdic.gov/about/) You will also find several other forms that may be helpful like:

  1. Proof of FDIC Coverage – You can use this form if you do not have your original deposit insurance certificate.
  2. Proof of Depositor Identity – Federal Deposit Insurance Corporation may require you to prove your identity when you file a claim.
  3. Proof of Loss – Federal Deposit Insurance Corporation may ask for this form if you are filing a claim based on an account balance less than the FDIC coverage limit.

What Happens if a Federal Depository Institution Goes Bankrupt?

If the Federal Depository Institution goes bankrupt, the Federal Deposit Insurance Corporation will normally take over the Federal Depository Institution and pay off its depositors. They will resolve it through the following:

  • FDIC usually appoints the Federal Deposit Insurance Corporation Board of Directors or Federal Deposit Insurance Corporation Management to run the Federal Depository Institution for an interim period while it is attempting to find buyers for Federal Depository Institution branches. 
  • FDIC also looks for buyers for Federal Depository Institution assets or Federal Depository Institution deposits.
  • Assist Federal depository institutions to merge with another Federal depository institution.
  • Assist Federal depository institutions in selling their assets and liabilities to another insured Federal depository institution, which will result in a charter conversion.
  • Liquidating Federal depository institutions’ assets and paying Federal depository institutions’ depositors.
  • Federal Deposit Insurance Corporation will reopen Federal depository institution’s branches under Federal Deposit Insurance Corporation supervision. 

The Bottom Line 

Federal Deposit Insurance Corporation is a Federal agency that works to ensure the safety and soundness of Federal deposit banks.  Federal Deposit Insurance Corporation helps Federal depository institutions meet their goals while protecting both depositors and the U.S. economy from problems in the banking system. Federal Deposit Insurance Corporation provides insurance on bank deposits up to $250,000 per depositor at each insured bank. Federal Deposit Insurance Corporation also regulates Federal depository institutions, including banks and savings associations.

The Federal Deposit Insurance Corporation is an independent agency created by Congress in 1933 (12 U.S. Code Chapter 14, section 3). The Federal Deposit Insurance Corporation is a Federal corporation and Federal agency with corporate features.
Federal Deposit Insurance Corporation provides Federal deposit insurance to about 8,000 Federal depository institutions insured by Federal Deposit Insurance Corporation. Federal banks include Federal bank savings associations and Federal credit unions, among others.
Federal Reserve Banks collect the premiums from Federal deposit banks and hold them in an insurance fund for later use when needed.
Federal deposit insurance is $250,000 per Federal depository institution per depositor. Federal depository institutions can have several insured accounts and each account holder at the same Federal depository institution may receive up to $250,000 of Federal deposit insurance coverage.
In addition to providing insurance on Federal deposit banks' deposits, Federal Deposit Insurance Corporation supervises Federal depository institutions under FDIC jurisdiction to insure that Federal depository institutions are operating with safety and soundness.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.