15.4 Insuring Bank Deposits

Bank deposits are a crucial part of our financial system. The FDIC, created during the Great Depression, insures these deposits up to $250,000 per account. This protection covers various account types, giving depositors peace of mind about their money's safety.

Beyond insurance, the FDIC plays a key regulatory role. It examines banks, issues guidelines, and takes action when institutions face trouble. From informal measures to handling bank failures, the FDIC works to maintain stability in our banking system.

Insuring Bank Deposits

FDIC Overview

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• Independent federal agency that insures deposits in banks and thrift institutions for at least $250,000
• Protects depositors against the loss of their insured deposits if an FDIC-insured bank or savings association fails
  • Covers all types of deposits received at an insured bank including checking, savings, money market deposit accounts, and certificates of deposit (CDs)
  • Does not cover investments such as stocks, bonds, mutual funds, life insurance policies, annuities, or securities
• Standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category (single accounts, joint accounts, retirement accounts, etc.)
• No depositor has lost a single cent of insured funds as a result of a failure since the FDIC was created in 1933 during the Great Depression

FDIC Regulatory Role

• Examines and supervises financial institutions for safety and soundness and consumer protection
  • Performs regular on-site bank examinations to ensure institutions are following safe and sound banking practices (lending, risk management, etc.)
  • Monitors the financial condition of banks off-site to identify potential problems early before they become serious
• Issues regulations, policies, and guidance to promote stability and public confidence in the nation's financial system
• Educates consumers about deposit insurance coverage, responsible financial practices, and how to resolve disputes with financial institutions

Troubled Bank Actions

• Informal enforcement actions for less serious issues
  • Board Resolutions: Outlines specific steps the bank's board of directors will take to correct identified problems
  • Memorandum of Understanding (MOU): A bilateral agreement between the FDIC and the bank to address certain issues
• Formal enforcement actions for more serious matters
  • Consent Order: An order issued with the written consent of the bank to cease and desist from engaging in specified misconduct or violations
  • Cease and Desist Order: An order issued without the bank's consent, legally ordering the bank to cease and desist from specified misconduct or violations
  • Civil Money Penalties: Monetary penalties assessed for violations of laws, regulations, or orders
• Failure resolution if bank becomes insolvent
  • Purchase and Assumption (P&A): A healthy bank purchases some or all of the assets of a failed bank and assumes some or all of the liabilities, including insured deposits
  • Deposit Payoff: The FDIC directly pays depositors for their insured funds and attempts to recover those funds through the liquidation and sale of the failed bank's assets