FDIC - Federal Deposit Insurance Corporation

Layer-visible-off
0
Unfavorites
0

Who is the FDIC and what functions do they perform?


0
correct_answer

The Great Depression, begun in October 1929, in the United States spurred the federal government to protect future, public financial deposits in bank and thrift institutions by insuring these deposits. A public hysteria started mass withdrawals of funds from bank and thrift institutions. Culminating in 1933, many banks were forced to close due to massive withdrawals. The federal government needed to stop the monetary bleeding of banks and thrift institutions. Public confidence in bank and thrift institutions needed to be restored quickly.

The Federal Deposit Insurance Corporation (FDIC) was created in 1933 as part of the Glass-Steagall Act. It was a response to the runaway fund withdrawals from depositors' institutions. As a separate agency of the federal government, the FDIC oversees depositor risks and insures deposits for at least $100,000. In case a financial institution fails, its effects on the economy are mitigated.

The FDIC protects the individual bank and thrift institution depositor. It does not insure investments such as mutual funds, private portfolios, and securities. As a result, bank and thrift institution deposits are called insured investments and securities are called uninsured investments.

An example of FDIC function is described in the following scenario. Let’s say a depositor has his/her funds in a failed chartered bank (FDIC member). The chartered bank can sell its funds to another bank. From the customer’s perspective, this transfer usually goes unnoticed, and customer services go uninterrupted. The new chartered bank now assumes responsibility for the depositor’s funds.

This is what is called restoring confidence in financial institutions that hold depositors' funds. The FDIC monitors and protects consumers from failed bank or thrift institutions. No depositor has lost funds since the agency was created in 1934.

The FDIC receives no federal monies but instead receives its funding from insurance payments that the FDIC charges bank and thrift institutions for held deposits. Earnings from U.S. Treasury, security investments also comprise FDIC funding.

Member bank and thrift institutions are required to follow liquidity and reserve conditions. If a bank falls below these liquidity and reserve limits or conditions, the bank receives a warning from the FDIC. Once a negative limit is reached, the FDIC can take corrective action, which means dictating solutions for improving bank management. If a bank becomes critically under-funded, the FDIC can initiate closing procedures by declaring that the bank is no longer liquid.

The FDIC insures checking, money market, and savings accounts. Also included are certificates of deposit. It does not insure securities, mutual funds, or other types of investment. As a result, accounts are denoted as either insured or uninsured.

Answered over 7 years ago
Anonymous

You Must Be Logged In To Answer