What Is the FDIC?

When the Great Depression hit the United States in the late 1920s, banks collapsed like houses of cards. How did this hurt consumers? When the banks failed, they lost their customers' money. Failed banks lost an estimated $1.3 billion of consumers' deposited money between 1929 and 1933.

Statues in Washington, D.C., commerating the Great Depression
AFP/Paul J. Richards
The sorrowful faces of the life-size statues are a powerful expression of the times, showing the inactivity and troubles of everyday citizens during the Great Depression.

To help rectify the situation, President Franklin D. Roosevelt signed the Banking Act of 1933, which, among other things, created the Federal Deposit Insurance Corporation. The primary purpose of the FDIC was to ensure that consumers who banked with an insured bank didn't lose their money if the bank curled up and died. For this insurance coverage, banks paid a flat-rate premium of $2,500 per depositor, which increased to $5,000 soon after the FDIC's founding. Although certainly no panacea for the Great Depression, this insurance helped to restore consumer confidence in banking institutions.

Other major events in the FDIC's history include:

  • The Federal Deposit Insurance Act of 1950 boosted insurance coverage to $10,000 per depositor. This law also authorized the FDIC to invest money in (or "bail out") a failing U.S. bank, if the bank's failure would cause serious economic turmoil in the community it served. Without a bank to invest in business and community development, a city or region can be left financially impaired or devastated. The FDIC usually uses the term "too big to fail" to describe such financial institutions.

  • The Depository Institutions Deregulation and Monetary Control Act of 1980 increased the FDIC's insurance coverage to $100,000 per depositor.

  • The Federal Deposit Insurance Corporation Improvement Act of 1991 changed the flat-rate premium paid by insured banks to a risk-based premium, as with health insurance and auto policies. In the 1980s, years of recession saw massive bank failures in the U.S., especially among savings and loan institutions. The FDIC spent billions of dollars to bail out banks it deemed "too big to fail," but some of these banks ended up failing anyway. To prevent the FDIC from wasting money on unwise bailouts, this Act requires Presidential approval of any bailout.