Federal Deposit Insurance Corporation

Ownership categories

Each ownership category of a depositor's money is insured separately up to the insurance limit, and separately at each bank. Thus a depositor with $250,000 in each of three ownership categories at each of two banks would have six different insurance limits of $250,000, for total insurance coverage of 6 × $250,000 = $1,500,000. The distinct ownership categories are

All amounts that a particular depositor has in accounts in any particular ownership category at a particular bank are added together and are insured up to $250,000.

For joint accounts, each co-owner is assumed (unless the account specifically states otherwise) to own the same fraction of the account as does each other co-owner (even though each co-owner may be eligible to withdraw all funds from the account). Thus if three people jointly own a $750,000 account, the entire account balance is insured because each depositor's $250,000 share of the account is insured.

The owner of a revocable trust account is generally insured up to $250,000 for each unique beneficiary (subject to special rules if there are more than five of them). Thus if there is a single owner of an account that is specified as in trust for (payable on death to, etc.) three different beneficiaries, the funds in the account are insured up to $750,000.

Board of directors

The Board of Directors of the FDIC is the governing body of the FDIC. The board is composed of five members, three appointed by the president of the United States with the consent of the United States Senate and two ex officio members. The three appointed members each serve six-year terms. No more than three members of the board may be of the same political affiliation. The president, with the consent of the Senate, also designates one of the appointed members as chairman of the board, to serve a five-year term, and one of the appointed members as vice chairman of the board, to also serve a five-year term. The two ex officio members are the Comptroller of the Currency and the director of the Consumer Financial Protection Bureau (CFPB).

As of January 1, 2016, the members of the Board of Directors of the Federal Deposit Insurance Corporation were:

Panics of 1893 and 1907 and the Great Depression: 1893-1933

During the Panics of 1893 and 1907, many banks filed bankruptcy due to bank runs caused by contagion. Both of the panics renewed discussion on deposit insurance. In 1893, William Jennings Bryan presented a bill to Congress proposing a national deposit insurance fund. No action was taken, as the legislature paid more attention to the agricultural depression at the time.

After 1907, eight states established deposit insurance funds. Due to the lax regulation of banks and the widespread inability of banks to branch; small, local unit banks—often with poor financial health—grew in numbers, especially in the western and southern states. In 1921, there were about 31,000 banks in the US. The Federal Reserve Act initially included a provision for nationwide deposit insurance, but it was removed from the bill by the House of Representatives. From 1893 to the FDIC's creation in 1933, 150 bills were submitted in Congress proposing deposit insurance.

The Great Depression devastated the American banking system. There was widespread panic over the American banking system; in the years before the FDIC's creation, more than one-third of all banks failed due to bank runs. Small banks in rural areas were especially affected. Reassurances and regulations by the government failed to assuage depositors' fears. Many depositors withdrew their assets in failed or nearly-insolvent banks.

Establishment of the FDIC: 1933

On 16 June 1933, Franklin D. Roosevelt signed the 1933 Banking Act into law, creating the FDIC. The initial plan set by Congress in 1934 was to insure deposits up to $2,500 ($44,757 today) adopting of a more generous, long-term plan after six months. However, the latter plan was abandoned for an increase of the insurance limit to $5,000 ($89,515 today).

The 1933 Banking Act:

Historical insurance limits

Congress approved a temporary increase in the deposit insurance limit from $100,000 to $250,000, which was effective from October 3, 2008, through December 31, 2010. On May 20, 2009, the temporary increase was extended through December 31, 2013. However, the Dodd–Frank Wall Street Reform and Consumer Protection Act (P.L.111-203), which was signed into law on July 21, 2010, made the $250,000 insurance limit permanent. In addition, the Federal Deposit Insurance Reform Act of 2005 (P.L.109-171) allows for the boards of the FDIC and the National Credit Union Administration (NCUA) to consider inflation and other factors every five years beginning in 2010 and, if warranted, to adjust the amounts under a specified formula.

S&L and bank crisis of the 1980s

Federal deposit insurance received its first large-scale test since the Great Depression in the late 1980s and early 1990s during the savings and loan crisis (which also affected commercial banks and savings banks).

The brunt of the crisis fell upon a parallel deposit insurer, the Federal Savings and Loan Insurance Corporation (FSLIC), created to insure savings and loan (S&L) institutions (S&Ls, also called thrifts). Because of a confluence of events, much of the S&L industry was insolvent, and many large banks were in trouble as well. The FSLIC became insolvent and was abolished in August 1989. It was replaced by the Resolution Trust Corporation (RTC). On December 31, 1995, the RTC was merged into the FDIC, and the FDIC became responsible for resolving failed thrifts. Supervision of thrifts became the responsibility of a new agency, the Office of Thrift Supervision. (Credit unions remained insured by the National Credit Union Administration.) The primary legislative responses to the crisis were the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), and Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). Federally chartered thrifts are now regulated by the Office of the Comptroller of the Currency (OCC), and state-chartered thrifts by the FDIC.

Final combined total for all direct and indirect losses of FSLIC and RTC resolutions was an estimated $152.9 billion. Of this total amount, U.S. taxpayer losses amounted to approximately $123.8 billion (81% of the total costs.)

No taxpayer money was used to resolve FDIC-insured institutions.

2008

In 2008, twenty-five U.S. banks became insolvent and were closed by their respective chartering authority. However, during that year, the largest bank failure in terms of dollar value occurred on September 26, 2008, when Washington Mutual, with $307 billion in assets, experienced a 10-day bank run on its deposits.

The FDIC created the Temporary Liquidity Guarantee Program (TLGP) to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts, and certain holding companies, and by providing full coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount.

The deposit insurance limit was temporarily raised from $100,000 to $250,000.

2009

On August 14, 2009, Bloomberg reported that more than 150 publicly traded U.S. lenders had nonperforming loans above 5% of their total holdings. This is important because former regulators say that this is the level that can wipe out a bank's equity and threaten its survival. While this ratio does not always lead to bank failures if the banks in question have raised additional capital and have properly established reserves for the bad debt, it is an important indicator for future FDIC activity.

On August 21, 2009, Guaranty Bank, in Texas, became insolvent and was taken over by BBVA Compass, the U.S. division of Banco Bilbao Vizcaya Argentaria, the second-largest bank in Spain. This was the first foreign company to buy a failed bank during the credit crisis of 2008 and 2009. In addition, the FDIC agreed to share losses with BBVA on about $11 billion of Guaranty Bank's loans and other assets. This transaction alone cost the FDIC Deposit Insurance Fund $3 billion.

On August 27, 2009, the FDIC increased the number of troubled banks to 416 in the second quarter. That number compares to 305 just three months earlier. At the end of the third quarter, that number jumped to 552.

At the close of 2009, a total of 140 banks had become insolvent. This is the largest number of bank failures in a year since 1992, when 179 institutions failed.

2010

On February 23, 2010, FDIC Chairman Sheila Bair warned that the number of failures in 2010 could surpass the 140 banks that were seized in 2009. Commercial real estate overexposure was deemed the most serious threat to banks in 2010.

On April 30, 2010, the FDIC was appointed as receiver for three banks in Puerto Rico at a cost of $5.3 billion.

In 2010, 157 banks with approximately $92 billion in total assets failed.

In 2010, a new division within the FDIC, the Office of Complex Financial Institutions, was created to focus on the expanded responsibilities of the FDIC by the Dodd-Frank Act for the assessment of risk in the largest, systemically important financial institutions, or SIFIs. Its current director is James Wigand. In June 2013, Wigand announced that he will be stepping down as director.

Former funds

Between 1989 and 2006, there were two separate FDIC funds – the Bank Insurance Fund (BIF), and the Savings Association Insurance Fund (SAIF). The latter was established after the savings and loans crisis of the 1980s. The existence of two separate funds for the same purpose led to banks' attempting to shift from one fund to another, depending on the benefits each could provide. In the 1990s, SAIF premiums were, at one point, five times higher than BIF premiums; several banks attempted to qualify for the BIF, with some merging with institutions qualified for the BIF to avoid the higher premiums of the SAIF. This drove up the BIF premiums as well, resulting in a situation where both funds were charging higher premiums than necessary.

Then Chairman of the Federal Reserve Alan Greenspan was a critic of the system, saying, "We are, in effect, attempting to use government to enforce two different prices for the same item – namely, government-mandated deposit insurance. Such price differences only create efforts by market participants to arbitrage the difference." Greenspan proposed "to end this game and merge SAIF and BIF".

Deposit Insurance Fund

In February 2006, President George W. Bush signed into law the Federal Deposit Insurance Reform Act of 2005 (FDIRA) and a related conforming amendments act. The FDIRA contains technical and conforming changes to implement deposit insurance reform, as well as a number of study and survey requirements. Among the highlights of this law was merging the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) into a new fund, the Deposit Insurance Fund (DIF). This change was made effective March 31, 2006. The FDIC maintains the DIF by assessing depository institutions an insurance premium. The amount each institution is assessed is based both on the balance of insured deposits as well as on the degree of risk the institution poses to the insurance fund.

Bank failures typically represent a cost to the DIF because the FDIC, as receiver of the failed institution, must liquidate assets that have declined substantially in value while, at the same time, making good on the institution's deposit obligations.

Bond interest payments of the Financing Corporation, the funding vehicle for the "Resolution Fund" of the now defunct Federal Savings and Loan Insurance Corporation (FSLIC), are funded by DIF premiums.

A March 2008 memorandum to the FDIC board of directors shows a 2007 year-end Deposit Insurance Fund balance of about $52.4 billion, which represented a reserve ratio of 1.22% of its exposure to insured deposits, totaling about $4.29 trillion. The 2008 year-end insured deposits were projected to reach about $4.42 trillion with the reserve growing to $55.2 billion, a ratio of 1.25%. As of June 2008, the DIF had a balance of $45.2 billion. However, 9 months later, in March, 2009, the DIF fell to $13 billion. That was the lowest total since September, 1993 and represented a reserve ratio of 0.27% of its exposure to insured deposits totaling about $4.83 trillion. In the second quarter of 2009, the FDIC imposed an emergency fee aimed at raising $5.6 billion to replenish the DIF. However, Saxo Bank Research reported that, after Aug 7, further bank failures had reduced the DIF balance to $648.1 million. FDIC-estimated costs of assuming additional failed banks on Aug 14 exceeded that amount. The FDIC announced its intent, on September 29, 2009, to assess the banks, in advance, for three years' of premiums in an effort to avoid DIF insolvency. The FDIC revised its estimated costs of bank failures to about $100 billion over the next four years, an increase of $30 billion from the $70 billion estimate of earlier in 2009. The FDIC board voted to require insured banks to prepay $45 billion in premiums to replenish the fund. News media reported that the prepayment move would be inadequate to assure the financial stability of the FDIC insurance fund. The FDIC elected to request the prepayment so that the banks could recognize the expense over three years, instead of drawing down banks' statutory capital abruptly, at the time of the assessment. The fund is mandated by law to keep a balance equivalent to 1.15 percent of insured deposits. As of June 30, 2008, the insured banks held approximately $7,025 billion in total deposits, though not all of those are insured. As of September 30, 2012, total deposits at FDIC-insured institutions totaled roughly $10.54 trillion, although not all deposits are insured.

The DIF's reserves are not the only cash resources available to the FDIC. In addition to $67.3 billion of cash and U.S. Treasury securities held as of March 2016, the FDIC has the ability to borrow up to $100 billion from the Treasury. The FDIC can also demand special assessments from banks as it did in the second quarter of 2009.

"Full Faith and Credit"

In light of apparent systemic risks facing the banking system, the adequacy of FDIC's financial backing has come into question. According to the FDIC.gov website (as of March 2013), "FDIC deposit insurance is backed by the full faith and credit of the United States government. This means that the resources of the United States government stand behind FDIC-insured depositors." The statutory basis for this assertion is unclear, however. Congress, in 1987, passed a "Sense of Congress" to that effect, but such enactments do not carry the force of law.

Insurance requirements

To receive this benefit, member banks must follow certain liquidity and reserve requirements. Banks are classified in five groups according to their risk-based capital ratio:

When a bank becomes undercapitalized, the institution's primary regulator issues a warning to the bank. When the number drops below 6%, the primary regulator can change management and force the bank to take other corrective action. When the bank becomes critically undercapitalized the chartering authority closes the institution and appoints the FDIC as receiver of the bank.

At Q4 2010 884 banks had very low capital cushions against risk and were on the FDIC's "problem list". This was nearly 12 percent of all federally insured banks, the highest level in 18 years.

Resolution of insolvent banks

A bank's chartering authority—either an individual state banking department or the U.S. Office of the Comptroller of the Currency—closes a bank and appoints the FDIC as receiver. In its role as a receiver the FDIC is tasked with protecting the depositors and maximizing the recoveries for the creditors of the failed institution. The FDIC does not close banks.

The FDIC as receiver is functionally and legally separate from the FDIC acting in its corporate role as deposit insurer, and the FDIC as receiver has separate rights, duties, and obligations from those of the FDIC as insurer. Courts have long recognized these dual and separate capacities.

In 1991, to comply with legislation, the FDIC amended its failure resolution procedures to decrease the costs to the deposit insurance funds. The procedures require the FDIC to choose the resolution alternative that is least costly to the deposit insurance fund of all possible methods for resolving the failed institution. Bids are submitted to the FDIC where they are reviewed and the least cost determination is made.

A receivership is designed to market the assets of a failed institution, liquidate them, and distribute the proceeds to the institution's creditors. The FDIC as receiver succeeds to the rights, powers, and privileges of the institution and its stockholders, officers, and directors. The FDIC may collect all obligations and money due to the institution, preserve or liquidate its assets and property, and perform any other function of the institution consistent with its appointment.

A receiver also has the power to merge a failed institution with another insured depository institution and to transfer its assets and liabilities without the consent or approval of any other agency, court, or party with contractual rights. Furthermore, a receiver may form a new institution, such as a bridge bank, to take over the assets and liabilities of the failed institution, or it may sell or pledge the assets of the failed institution to the FDIC in its corporate capacity.

The two most common ways for the FDIC to resolve a closed institution and fulfill its role as a receiver are:

Covered Insured Depository Institutions Resolution Plans

To assist the FDIC in resolving an insolvent bank, the FDIC requires plans including the required submission of a resolution plan by covered institutions requirement under the Dodd Frank Act. In addition to the Bank Holding Company ("BHC") resolution plans required under the Dodd Frank Act under Section 165(d), the FDIC requires a separate Covered Insured Depository Institution ("CIDI") resolution plan for US insured depositories with assets of $50 billion or more. Most of the largest, most complex BHCs are subject to both rules, requiring them to file a 165(d) resolution plan for the BHC that includes the BHC's core businesses and its most significant subsidiaries (i.e., "material entities"), as well as one or more CIDI plans depending on the number of US bank subsidiaries of the BHC that meet the $50 billion asset threshold.

On December 17, the FDIC issued guidance for the 2015 resolution plans of CIDIs of large bank holding companies (BHCs). The guidance provides clarity on the assumptions that are to be made in the CIDI resolution plans and what must be addressed and analyzed in the 2015 CIDI resolution plans including:

Insured products

FDIC deposit insurance covers deposit accounts, which, by the FDIC definition, include:

Accounts at different banks are insured separately. All branches of a bank are considered to form a single bank. Also, an Internet bank that is part of a brick and mortar bank is not considered to be a separate bank, even if the name differs. Non-US citizens are also covered by FDIC insurance as long as their deposits are in a domestic office of an FDIC-insured bank.

The FDIC publishes a guide entitled "Your Insured Deposits", which sets forth the general characteristics of FDIC deposit insurance, and addresses common questions asked by bank customers about deposit insurance.

Items not insured

Only the above types of accounts are insured. Some types of uninsured products, even if purchased through a covered financial institution, are: