0
If you spell out FDIC it should tell you everything. Federal Deposit Insurance Corporation. The FDIC insures the deposits of bank customers against bank failure. The insurance premium is paid by nationally licensed banks to FDIC and they pay out benefits in the event of a bank going belly up. This recently occurred when IndyMac failed. FDIC took over IndyMac and sold the assets of it to help cover their losses.
Similar insurance agencies exist for other depository financial institutions such as state licensed banks, credit unions, and savings and loans. They function in a similar manner in the event of a failure of one of the institutions that they insure. This was the result of the large number of bank failures during the depression. However, keep in mind that the insurance is for a specific account balance. Anything over that balance is not insured. FDIC also plays a role as a bank regulator, especially in regards to the financial reserves that a bank has to maintain to cover any losses or runs on the bank.
The FDIC’s mission is to protect depositors in the event of a bank failure, and maintain citizens' confidence in the banking system. When a bank fails, FDIC steps in and first attempts to get another bank to take over, for example when JP Morgan took over Washington Mutual. Otherwise, the FDIC cuts checks to depositors in a matter iof days.
The biggest problem for depositors is deposits that are uncovered. In 15 bank failures prior to 1999, over $114 million dollars in deposits were *uninsured. In 1999, a customer found that of his $1.4 million deposited, nearly one million dollars were uninsured when his bank went under. There is no reason for this. FDIC offers a service called the Electronic Deposit Insurance Estimator, or EDIE. You just enter your deposit information and EDIE tells you what’s covered and what isn’t.
In addition, those who invest in CDs should consider the Certificate Deposit Account Registry Service, or CDARS. It allows depositors at banks registered with the network to buy FDIC-insured CDs up to a total of $50 million. This is possible because the network takes care of spreading the funds throughout different banks. This is important because while the deposit maximum was increased to $250,000 by Congress last year, this increase was only temporary. A $250,000 5 year CD may very well be underinsured by $150,000 in 2010. CDARS takes that risk out of the picture.
And finally, other depository institutions that don’t want to lose their high-end customers often offer private coverage for amounts that exceed FDIC limits at no charge. FDIC’s Web site offers a ton of information, including examples of the most common mistakes people make regarding their insurance. There is also good information on money-rates.com. And of course there is EDIE. But FDIC can’t help if you mess up and underinsure—like God, FDIC only helps those who help themselves.
What are the functions of FDIC?