Federal Deposit Insurance
An independent executive
agency, originally established by the BANKING ACT OF 1933 to insure the
deposits of all banks entitled to federal deposit insurance under Section
12B of the Federal Reserve Act; and under the FEDERAL DEPOSIT INSURANCE
ACT, approved September 21, 1950, since the latter date.
The FDIC, as it
is referred to, administers the system of nationwide deposit insurance
(or, more properly, mutual guaranty of deposits) for U.S. banks, established
for the first time in the nation's history effective January 1, 1934.
Its functions are more than merely ministerial, however, and it
has important supervisory and examination powers which make it the third
federal banking supvervisory agency, along with the Comptroller of the
Currency and the Board of Governors of the Federal Reserve System.
Management of the
FDIC is vested in a board of directors of three members.
The President appoints two members for terms of six years, by and
with the advice and consent of the Senate.
The third member is the Comptroller of the Currency.
One of the appointive members is designated chairman of the board
of directors. Under the law,
not more than two members of the board shall belong to the same political
of the corporation is in Washington, D.C., where the executive offices
are maintained and where about one-fourth of the corporation's total number
of employees are stationed. District
offices are maintained in Atlanta, Boston, Chicago, Columbus, Dallas,
Kansas City, Madison, Memphis, Minneapolis, New York, Philadelphia, Richmond,
St. Louis, and San Francisco, which service the districts involved.
Largest division in terms of personnel is the Division of Examination,
over 90% of whose employees, who account for about three-fourths of the
corporation's total employment, are assigned to the district offices.
is entirely self-sustaining. No
appropriations are made by Congress for it, its entire net income consisting
Assessments on insured banks.
Assessments are earned by the corporation at the
2. Income from investments, which are U.S. government securities.
The insured banks do not
All certified statements
submitted by the banks, showing the computation of assessments due, are
reviewed by the Washington office for clerical accuracy and for general
reasonableness of the figures reported.
Field audits of the assessment records of the banks are made by
the Audit Division.
the corporation's accumulated net income since inception (i.e., surplus).
The fund is available to meet future deposit insurance claims and
related losses. Its adequacy
to meet these future requirements is dependent upon the soundness of financial
condition of insured banks and their ability to maintain solvency despite
adverse factors such as unfavorable economic conditions generally and
individual bank difficulties specifically.
Thus the size of the fund is not a measure of the deposit insurance
is authorized to borrow up to $3 billion from the U.S. Treasury when in
the judgment of the board of directors such funds are required for insurance
purposes. This borrowing
authority has never been used. There
is no outstanding borrowed money.
corporation was helped to start operations by the subscription of $150
million in stock by the U.S. Treasury and another $140 million total stock
subscribed for by each Federal Reserve bank, in an amount equal to half
of the surplus of each Reserve bank as of January 1, 1933.
All of this capital was repaid in 1947 and 1948, and interest on
the capital was repaid to the U.S. Treasury in 1951.
The FDIC, aside
from its power to collect the deposit insurance assessments from the insured
banks (all national banks in the continental U.S. and all state banks
that are members of the Federal Reserve System are required to be insured;
all nonmember national and state banks mayd become insured upon applications
to the FDIC and compliance with statutory requirements), has the following
powers with respect to insured banks:
1. To examine insured banks not members of the Federal Reserve System and
2. To terminate the insured status of a bank which continues, after notice
and hearing, to
To pass upon conversions, mergers, or consolidations and assumption of
To act as receiver for all national banks placed in receivership
and for state banks placed
In protecting depositors, to make loans to or purchase assets from insured
banks in order
To approve or disapprove a proposal to reduce or retire the capital of
an insured bank not
7. To approve or disapprove a proposal by an insured bank not a member of
8. To prescribe rules and regulations relating to advertising which banks
must use to enable
To require insurance protection against burglary, defalcation,
and other similar insurable
To publish notice of the termination of the insured status of a bank and
to regulate the
To prohibit the payment of interest on demand deposits of insured banks
not members of
12. To limit rates of interest on time and savings deposits of insured banks
not members of
13. To prohibit, before maturity, the payment of time deposits of insured
banks not members
14. For the purpose of any hearing under the Federal Deposit Insurance Act,
to subpoena any
Activities of the
FDIC in 1987 and 1988 include the following:
1. Bank Secrecy Act.
Issued a rule requiring banks to establish and maintain procedures
Amended its capital regulations to (a) clarify and revise certain
3. Foreign bank branches - loan limits.
Specified that exposure in loans to entities or
Privacy Act of 1974.
its regulations so that appeals of adverse agency
Operation of Deposit
The insurance covers
deposits of every kind, including regular commercial deposits, time deposits,
savings deposits, and trust funds awaiting investment.
No distinction is made between public and private deposits, and
the insurance applies even though security, such as depository bonds or
collateral, may have been furnished by the bank for the repayment of such
deposits. For insurance purposes,
the official custodian of public funds is considered to be the depositor,
not the public unit; he is entitled to insurance upon such funds deposited
in an insured bank and maintained in the same right and capacity to the
maximum of $100,000. If the
deposited public funds are maintained in different rights and capacities,
such official custodian is entitled to the maximum insurance of $100,000
upon funds maintained in each different right and capacity.
If the official custodian holds the funds of several public units,
the insurance protection will be as above stated with respect to the funds
of each public unit.
individual accounts in the same
bank, in different rights and capacities, are entitled each to the $100,000
deposit insurance coverage; and the same right or capacity of an account,
in different insured
banks, is entitled to the maximum deposit insurance coverage in each insured
This has had some tendency to distribute deposits among insured
banks, as to those individuals who are deposit-insurance conscious.
Procedure in Protection of Depositors
A bank in difficulty may be placed in receivership
only by the supervisory authority concerned - the Comptroller of the currency
if a national bank, and the state authority if a state bank.
The corporation must be appointed as receiver for all national
banks placed in receivership and must accept appointment as receiver for
any insured state bank in receivership if tendered by the state supervisory
authority. As receiver, the
corporation has the rights and obligations provided for by the National
Bank Act in the case of a national bank or the applicable state law in
the case of a state bank.
Upon the placing of a bank in receivership,
the corporation examines the closed bank's records in order to establish
the amount of the insured deposit liability.
The amount of each depositor's insured deposit - the lesser of
the total amount of the deposit or $100,000 - is paid upon presentation
of a bona fide claim and subrogation of the claim against the receivership.
The subrogated claims entitle the corporation to share in receiver's
dividends pro-rata with the depositors having claims in excess of $100,000.
A bank in difficulty may, with the approval
of the supervisory authority and of the corporation, be merged with or
contract to have its deposit liabilities assumed by another insured bank
instead of being placed in receivership.
In such cases, the receiving bank (1) assumes all recorded deposit
liabilities of the closed bank, and (2) receives those assets of the closed
bank that are acceptable and funds equal to the difference between the
assumed deposit liabilities and the acceptable assets, which funds are
advanced to the closed bank by the corporation.
The corporation receives the unacceptable assets from the closed
bank in accordance with (1) a loan agreement under which the assets are
considered collateral, or (2) a purchase agreement under which the assets
are sold to the corporation and may, in some cases, be reacquired by the
The corporation liquidates the unacceptable
assets and retains the proceeds in reimbursement of the amount advanced
to the closed bank, in reimbursement of expenses incurred in connection
with the maintenance and liquidation of the assets, and in payment of
interest or allowable return on the unliquidated advances and accumulated
expenses. In the loan agreement cases, the corporation completes the
liquidation of the remaining assets and returns all proceeds in excess
of the recoverable amounts to the closed bank, unless the bank elects
to reacquire the assets and complete the liquidation.
See appended table of FDIC banks closed or assisted due to financial
difficulties, and problem banks:
1971-1987. Also see
appended Federal Insurance Commercial Banks - Assets and Liabilities:
The Competitive Equality Banking Act of 1987
contained several major provisions that were particularly significant
for the FDIC. The act provided
for financial institutions emergency acquisitions.
(1) Out-of-state holding companies were permitted to acquire qualified
stock institutions, as well as mutual savings banks, before they fail
if they have assets of $500 million or more; (2) a holding company to
be sold, in whole or in part, to an out-of-state holding company if the
in-state holding company has a bank or bank with aggregate banking assets
of $500 million or more in danger of closing and the bank or banks represent
33% or more of the holding company's banking assets; and (3) an out-of-state
holding company expansion rights in the state of acquisition through the
bank holding company structure.
The act also permits the FDIC to establish
a bridge bank to assume the deposits and liabilities and purchase the
assets of a failed bank under specified conditions.
The bridge bank must be a separately chartered national bank and
it must be operated by a five-member board of directors appointed by the
The FDIC and other financial institutions regulatory
agencies are exempt from the apportionment provisions of the Anti-Deficiency
Act (Gramm-Rudman-Hollings Act and the Anti-Deficiency Act.
Agricultural banks may, under certain circumstances,
write down their losses on agricultural loans over seven years rather
than deduct the amount of loss from capital as soon as the loss is recognized.
Nonbank banks are prohibited by requiring companies
which acquired a nonblank bank after March 5, 1987, to comply with the
Bank Holding Company act or divest their bank subsidiary.
The act authorized a newly established financing
corporation funded by the Federal Home Loan banks to raise $10.6 billion
for the FSLIC by selling bonds in the capital markets.
FSLIC is limited to spending up to $3.75 billion per year in conjunction
with failed thrift institutions.
A moratorium was imposed on insured banks with
respect to certain securities, insurance, and real estate activities.
Provisions of the Glass-Steagall Act that prohibits
affiliations and interlocking directors, officers, and employees between
banks and securities firms were extended to FDIC-insured nonmember banks
and thrift institutions until March 1, 1988.
Other provisions of the act require the FDIC
to consider and minimize the adverse economic impact of a liquidation
on the local community and require institutions offering adjustable-rate
mortgages to include a maximum interest rate that may apply during the
term of the loan.
In 1987, the five federal bank regulatory agencies
issued a rule requiring banks to establish and maintain procedures to
assure and monitor compliance with the Bank Secrecy Act and the Implementing
regulations promulgated thereunder by the Department of the Treasury.
The FDIC in 1987 amended its capital regulations to (1) clarify
and revise certain definitions, (2) reserve the authority of the FDIC
with respect to the definitions of "primary capital" and "secondary capital,"
(3) specify that the terms and conditions to which capital instruments
are subject must be consistent with safe and sound banking practices,
and (4) limit, on the basis of insurance status, the circumstances in
which the FDIC will not approve a proposed merger transaction when the
resulting entity will not meet the FDIC's minimum capital requirements.
FEDERAL DEPOSIT INSURANCE CORPORATION.
Federal Deposit Insurance Corporation. Vols.
I and II.
Prentice Hall, Inc., Englewood Cliffs, NJ.
LAPIDUS, L., et al.
State and Federal Regulation of Commercial Banks (2 vols.). Federal Deposit Insurance Corporation, 1980.
Bailout: An Insider's
Account of Bank Failures and Rescues.
Basic Books, Inc., New York, NY, 1986.
FDIC Organization Chart