What is the FDIC?

FDIC stands for Federal Deposit Insurance Corporation. It is an independent agency of the federal government that regulates about 5,300 banks in the United States. In the 1920s and early 1930s, the U.S. banking system was plagued with thousands of failures and many Americans became weary of making deposits. in 1933, Congress passed the Glass-Steagall Act and on 1 January 1934, the FDIC began its operations.

The charter of the FDIC is to maintain public confidence in the banking system; this is achieved by providing insurance to depositors and by taking pre-emptive measures to minimize bank failures. Depositors are granted $100,000 insurance for their savings and checking deposits; if a bank fails, the FDIC will reimburse depositors up to $100,000. Member banks 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 guidelines, the FDIC issues a warning. If problems persist, the FDIC has the authority to change management or force the bank to take other corrective actions. Although rare, the FDIC can take steps that indirectly lead to the closure of the bank.

The FSLIC (Federal Savings and Loan Insurance Corporation) was similar to the FDIC insofar as it regulated financial institutions, but it focused on Savings and Loans. A significant number of S&Ls ran into financial difficulty in the 1980s, which effectively bankrupted the FSLIC. The FDIC assumed the role of deposit insurer for any of the S&Ls that survived.