Federal Deposit Insurance Corporation

• Author: Jeffrey Lehman, Shirelle Phelps

Page 342

The Federal Deposit Insurance Corporation (FDIC) was created on June 16, 1933, under the authority of the Federal Reserve Act, section 12B (12 U.S.C.A. § 264(s)). It was signed into law by President FRANKLIN D. ROOSEVELT to promote and preserve public confidence in banks at the time of the most severe banking crisis in U.S. history. From the STOCK MARKET crash of 1929 to the beginning of Roosevelt's tenure as president in 1933, over 9,000 banks closed their doors, resulting in losses to depositors of $1.3 billion. The FDIC was established in order to provide insurance coverage for bank deposits, thereby maintaining financial stability throughout the United States.

The FDIC is an independent agency of the federal government. Its management was established by the Banking Act of 1933. It consists of a board of directors numbering three members, one the comptroller of the currency, and two appointed by the president with approval of the Senate. The two appointed members serve six-year terms, and one is elected by the members to serve as chair of the board. The headquarters of the FDIC is located in Washington, D.C., and the corporation has 13 regional offices. Most of its employees are bank examiners.

The FDIC does not operate on funds from Congress. The capital necessary to start the corporation back in 1933 was provided by the U.S. Treasury and the 12 Federal Reserve banks. Since then, its major sources of income have been assessments on deposits held by insured banks and interest on its portfolio of U.S. Treasury SECURITIES.

Besides administering the Bank Insurance Fund, the FDIC is also responsible for the Savings Association Insurance Fund (SAIF), which was established on August 9, 1989, under the authority of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) (12 U.S.C.A. § 1821 (2)). The SAIF insures deposits in savings and loan associations.

The FDIC also insures, up to the statutory limitation, deposits in national banks, state banks that are members of the Federal Reserve System, and state banks that apply for federal deposit insurance and meet certain qualifications. If an insured bank fails, the FDIC pays the claim of each depositor, up to $100,000 per account.

The FDIC may make loans to, or purchase assets from, insured depository institutions in order to facilitate mergers or consolidations, when such action for the protection of depositors will...