Federal Deposit Insurance Corporation facts for kids
| FDIC | |
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| Agency overview | |
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| Formed | June 16, 1933 |
| Jurisdiction | Federal government of the United States |
| Employees | 5,952 (2023) |
| Annual budget | $1.96 billion (2024) |
| Agency executive |
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The Federal Deposit Insurance Corporation (FDIC) is a special part of the U.S. government. Its main job is to protect the money people put into commercial banks and savings banks. Think of it like an insurance company for your bank deposits!
The FDIC was created in 1933 during a tough time called the Great Depression. Before the FDIC, many banks failed, and people lost all their savings. This made people stop trusting banks. The FDIC was made to bring that trust back.
Today, the FDIC insures deposits up to $250,000 per person, per bank, for each type of account. This means if your bank fails, the FDIC makes sure you get your insured money back. Since it started, no one has ever lost insured money because of a bank failure. The FDIC gets its money from banks themselves, not from public taxes. Banks pay fees to the FDIC to be part of this insurance system.
Contents
What Does the FDIC Do?
The FDIC does more than just insure your money. It also checks on banks to make sure they are safe and sound. This helps prevent banks from failing in the first place. They also help manage banks that do fail, making sure everything is handled smoothly.
How Do Banks Qualify for Insurance?
For a bank to be insured by the FDIC, it has to follow certain rules. These rules are about how much money the bank needs to keep on hand. Banks are checked and put into different groups based on how strong their finances are:
- Well Capitalized: Very strong, with 10% or more of their money set aside.
- Adequately Capitalized: Strong enough, with 8% or more.
- Undercapitalized: Needs to improve, with less than 8%.
- Significantly Undercapitalized: In more serious trouble, with less than 6%.
- Critically Undercapitalized: In big trouble, with less than 2%.
If a bank's money drops too low, the government warns them. If it gets really bad, the bank might be closed, and the FDIC steps in to help.
What Money Is Insured?
The FDIC protects many common types of bank accounts. If your bank fails, the FDIC makes sure you get your money back from these accounts:
- Checking accounts: Used for everyday spending.
- NOW accounts: Checking accounts that can earn interest.
- Savings accounts: Where you keep money you want to save.
- Money market deposit accounts (MMDAs): Savings accounts that might earn more interest.
- Certificates of deposit (CDs): Money you put away for a set time to earn interest.
- Cashier's checks: Checks issued by the bank itself.
- Foreign currency accounts: Accounts holding money from other countries.
It's important to know that all branches of the same bank are counted as one bank. So, if you have accounts at different branches of the same bank, they are all added together for the $250,000 limit. Even if you're not a U.S. citizen, your deposits in a U.S. FDIC-insured bank are protected.
What Is NOT Insured?
Not everything you buy through a bank is insured by the FDIC. Here are some things that are usually NOT covered:
- Stocks, bonds, and mutual funds: These are investments, and their value can go up or down. Another group, the Securities Investor Protection Corporation (SIPC), might help if your brokerage firm fails, but not if the investments just lose value.
- U.S. government investments: Like Treasury bonds. These are already backed by the U.S. government.
- Safe deposit box contents: These are just storage spaces you rent. The FDIC doesn't insure what's inside.
- Insurance and annuity products: Like life insurance or car insurance.
The FDIC only protects your money if the bank itself fails. It doesn't cover losses from theft, fraud, or mistakes by the bank.
How Ownership Categories Affect Coverage
The $250,000 insurance limit applies to each ownership category at each bank. This means you can have more than $250,000 insured if your money is in different types of accounts or at different banks. For example:
- Single accounts: Money you own by yourself.
- Retirement accounts: Like IRAs.
- Joint accounts: Accounts owned by more than one person. Each co-owner's share is insured up to $250,000. So, if three people share an account with $750,000, it's all insured because each person's $250,000 share is covered.
- Trust accounts: Money held for a beneficiary.
- Business accounts: For companies or partnerships.
- Government accounts: Money held by government bodies.
All the money you have in one ownership category at one bank is added together for the $250,000 limit.
How the FDIC Gets Its Money
The FDIC doesn't get money from taxes. Instead, it collects fees, called premiums, from each bank it insures. These fees go into a special fund called the Deposit Insurance Fund (DIF). This fund is used to pay for the FDIC's operations and to pay back depositors if a bank fails.
The amount a bank pays depends on how much money it has insured and how risky it is. The DIF also earns interest from investments in U.S. government bonds. The FDIC aims to keep the DIF at a certain level, usually around 1.35% of all insured deposits.
In the past, during big financial crises, the FDIC's fund has run low. When this happens, the FDIC can borrow money from the government. It can also ask banks to pay premiums in advance to rebuild the fund.
For a while, there were two separate funds: one for regular banks and one for savings and loan associations. This caused some problems because banks would try to switch between funds to pay lower fees. In 2006, these two funds were combined into one, making the system simpler and fairer.
What Happens When a Bank Fails?
If a bank is in so much trouble that it can't stay open, the government closes it. Then, the FDIC steps in as the "receiver." This means the FDIC takes over the bank to protect its customers and deal with its assets.
The FDIC has two main ways to handle a failed bank:
- Selling the bank: Most often, the FDIC finds another healthy bank to buy the failed bank's deposits and some of its loans. This way, customers usually don't even notice a change, and their money is safe.
- Paying depositors directly: If no other bank wants to buy the failed bank, the FDIC pays all insured depositors directly from the Deposit Insurance Fund. People with uninsured money or other creditors might get some money back later, but not right away.
The FDIC always tries to choose the cheapest way to resolve a bank failure to protect the insurance fund.
Planning for Bank Failures
Large banks are required to have "living wills" or resolution plans. These plans explain how the bank would be handled if it failed. This helps the FDIC quickly step in and manage the situation, especially for very large banks that could affect the entire financial system.
Who Leads the FDIC?
The FDIC is run by a Board of Directors. This board has five members. Three members are chosen by the president of the United States and approved by the United States Senate. They serve six-year terms. The other two members are already leaders of other important financial agencies. The president also chooses one of the appointed members to be the Chairman, who leads the board for five years.
As of early 2023, the Chairman is Martin J. Gruenberg.
History of the FDIC
Before the FDIC: 1893–1933
Before the FDIC, if your bank ran out of money, you could lose everything. This led to "bank runs," where everyone rushed to take their money out, causing more banks to fail. This happened during the Panics of 1893 and 1907. Many people wanted deposit insurance, but it didn't happen right away.
The problem got much worse during the Great Depression in the early 1930s. Thousands of banks failed, and people lost their life savings. This led to a huge loss of trust in the banking system.
The FDIC Is Created: 1933
Even though some leaders were unsure, the public strongly supported the idea of deposit insurance. So, on June 16, 1933, President Franklin D. Roosevelt signed a law that created the FDIC.
At first, the FDIC insured deposits up to $2,500. This was a big step to make people feel safe putting their money back in banks. The new law also gave the FDIC power to oversee banks and separated regular banking from investment banking. In 1935, the FDIC became a permanent government agency, and the insurance limit was raised to $5,000.
Changes in Insurance Limits
Over the years, the amount the FDIC insures has gone up to keep pace with rising prices (inflation).
- 1934: $2,500
- 1935: $5,000
- 1950: $10,000
- 1966: $15,000
- 1969: $20,000
- 1974: $40,000
- 1980: $100,000
- 2008: $250,000
In 2010, the $250,000 limit became permanent. Banks display a special sign to show they are FDIC-insured, which helps people feel confident about their money.
Challenges in the 1980s
In the late 1980s and early 1990s, there was a big crisis with savings and loan institutions (S&Ls). The agency that insured S&Ls ran out of money. The FDIC stepped in to help, taking over the job of resolving failed S&Ls. This was a huge test for the FDIC, and it showed how important its role was.
The 2008 Financial Crisis
The 2007–2008 financial crisis was the biggest challenge for the FDIC since the Great Depression. Many banks failed, including some very large ones. The FDIC worked hard to manage these failures and keep people's trust. They even temporarily guaranteed certain bank debts to calm the financial markets.
Although the FDIC's insurance fund ran low during this time, it was rebuilt by banks paying premiums. New laws were also put in place to give the FDIC more power to handle very large financial institutions and prevent future crises.
List of Chairpersons
| Portrait | Chairpersons | Term started | Term ended |
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Walter J. Cummings | September 11, 1933 | February 1, 1934 |
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Leo Crowley | February 1, 1934 | October 15, 1945 |
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Preston Delano (Acting) | October 15, 1945 | January 5, 1946 |
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Maple T. Harl | January 5, 1946 | May 10, 1953 |
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Henry E. Cook | May 10, 1953 | September 6, 1957 |
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Ray M. Gidney (Acting) | September 6, 1957 | September 17, 1957 |
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Jesse P. Wolcott | September 17, 1957 | January 20, 1961 |
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Erle Cocke Sr. | January 20, 1961 | August 4, 1963 |
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James J. Saxon (Acting) | August 4, 1963 | January 22, 1964 |
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Joseph W. Barr | January 22, 1964 | April 21, 1965 |
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Kenneth A. Randall | April 21, 1965 | March 9, 1970 |
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William B. Camp (Acting) | March 9, 1970 | April 1, 1970 |
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Frank Wille | April 1, 1970 | March 16, 1976 |
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James Smith (Acting) | March 16, 1976 | March 18, 1976 |
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Robert E. Barnett | March 18, 1976 | June 1, 1977 |
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George A. LeMaistre | June 1, 1977 | August 16, 1978 |
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John G. Heimann (Acting) | August 16, 1978 | February 7, 1979 |
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Irvine H. Sprague | February 7, 1979 | August 2, 1981 |
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William Isaac | August 3, 1981 | October 21, 1985 |
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L. William Seidman | October 21, 1985 | October 16, 1991 |
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Andrew C. Hove Jr. (Acting) | October 17, 1991 | October 25, 1991 |
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William Taylor | October 25, 1991 | August 20, 1992 |
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Andrew C. Hove Jr. (Acting) | August 20, 1992 | October 7, 1994 |
| Ricki R. Tigert | October 7, 1994 | June 1, 1997 | |
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Andrew C. Hove Jr. (Acting) | June 1, 1997 | May 25, 1998 |
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Donna Tanoue | May 26, 1998 | July 11, 2001 |
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John N. Reich (Acting) | July 12, 2001 | August 29, 2001 |
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Donald E. Powell | August 29, 2001 | November 15, 2005 |
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Martin J. Gruenberg (Acting) | November 16, 2005 | June 26, 2006 |
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Sheila Bair | June 26, 2006 | July 8, 2011 |
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Martin J. Gruenberg (Acting) | July 9, 2011 | November 28, 2012 |
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Martin J. Gruenberg | November 29, 2012 | June 5, 2018 |
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Jelena McWilliams | June 5, 2018 | February 4, 2022 |
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Martin J. Gruenberg (Acting) | February 5, 2022 | January 5, 2023 |
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Martin J. Gruenberg | January 5, 2023 | Present |
See also
In Spanish: Corporación Federal de Seguro de Depósitos para niños
- 1933 Banking Act
- List of bank failures in the United States (2008–present)
- List of largest bank failures in the United States
Related agencies and programs
- Canada Deposit Insurance Corporation – Canada's version of the FDIC
- National Credit Union Share Insurance Fund – Protects money in credit unions
