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The Federal Deposit Insurance Corporation is funded by member banks and savings institutions. It is deposit insurance to individuals for accounts kept at member banks which are subject to the insurance. The banks are buying an insurance policy for you, the depositor. The premium assessed by FDIC will be based on the amount of deposits that are subject to the insurance. For example, if the ceiling is $250,000 and you have one account with $300,000 in it, the premium would be based only on the $250,000, not the full amount in the account.
If you are in a position of exceeding the normal insurance coverage, there are ways to subject your funds to be fully insured. The structuring of account holders can vary, but your local banker can give you some guidance in that area.
But, just as there is no such thing aa a corporate tax, there is no such thing as a corporate expense such as insurance premiums. Expenses are factored into the interest rates paid to depositors. And into the pricing of interest rates on loans. So, indirectly, depositors pay the premiums by way of lower interest rates paid on deposits.
The FDIC is essentially an insurance fund, so it is funded via it’s members. FDIC stands for Federal Deposit Insurance Corporation. The key word there is insurance. Insurance is funded by the payments of those paying for it’s protection. Just like with any insurance you own, whether it’s auto, home, life, etc you pay the insurance company and the insurance company pools those payments into a fund to pay out claims. In this case, banks are those paying for the proctection of the FDIC so they pay insurance premiums to the FDIC to insure their deposits.
This system, as of late due to the number of bank failures, is being stretched thinner than what the FDIC would like. As such they have begun warning banks that their will require additional premiums. Think of it this way, if many many more people began to drive recklessly and get into accidents, insurance premiums would go up for everyone with auto insurance. This is basically what is happening currently with the FDIC. Because of the number of banks that are experiencing issues, the FDIC needs to acquire more capital for it’s insurance fund. This is done by passing the cost along to the banks who pay for their protection. Ultimately because the FDIC is a federally backed corporation, if there would become a large shortfall, the government would directly insure the deposits of banks. This goes hand in hand with why the FDIC was started (to avoid runs on banks when times get bad), but at this point the FDIC’s insurance fund is still able to operate on its own.
How is the FDIC funded?